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The euro broadly firmed over the past four weeks, with the single currency being buoyed as EUR investors repriced their European Central Bank (ECB) rate hike expectations.

EUR/GBP: Up from £0.84 to £0.85

EUR/USD: Down from $1.06 to $1.05

The ECB is set to raise interest rates by 25bps points in July and it has repeatedly hinted that it could pursue a 50bps hike in September. However the euro also faced some hurdles in June, most notably in the wake of the ECB’s latest interest rate decision as it failed to ease fears that its impending rate hikes cold cause fragmentation in Eurozone.

Also acting as a headwind for the euro were renewed concerns over Europe’s energy security amidst a sharp drop in Russian gas exports to the continent. Going forward, the ECB’s impending rate hike could help to underpin demand for the euro over the coming month. However the threat of Russia further restricting gas exports to Europe could limit the single currency’s upside potential.

Pound

GBP/EUR: Down from €1.17 to €1.16

GBP/USD: Down from $1.25 to $1.22

The pound struggled over the past month, with the currency facing significant pressure amidst concerns over the UK’s economic trajectory. This came on the back of underwhelming UK macroeconomic data and growing cost of living concerns, with some analysts suggesting a UK recession is now inevitable.

Also dragging on Sterling sentiment has been considerable UK political uncertainty. A no-confidence vote against Boris Johnson in addition to renewed Brexit tensions between the UK and EU spooked GBP investors.

Helping the pound rebound from multi-year lows was the Bank of England’s (BoE) latest interest rate decision. While the bank only raised rates by 25bps this month, GBP investors seized on the more hawkish tone struck by the bank in its forward guidance. A key focus for GBP investors over the coming month will be any data which may shed light on UK consumer spending habits. Any drop is likely to validate fears of an economic slow down.

US Dollar USD/GBP: Up from $0.79 to $0.81

USD/EUR: Up from €0.93 to €0.95

The US dollar has trended broadly higher over the past month as an increasingly dour market mood has bolstered demand for the safe-haven currency. This flight to safety comes amid growing fears that we are hurtling towards a global recession, concerns over which triggered a major equity selloff in mid-June and propelled the US dollar to new multi-year highs.

A surprisingly strong US inflation print also boosted the US dollar as it bolstered expectations for an aggressive interest rate hike from the Federal Reserve. While the Fed ultimately delivered a 75bps hike, the US dollar retreated following its decision as the bank’s forward guidance proved less hawkish than expected.

Looking ahead, the US dollar looks poised to extend its bullish trajectory as growing growth concerns and the prospect of another aggressive rate hike from the Fed is likely to underpin the currency.

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