Pound wobbles as Starmer resigns, US dollar strengthened by hawkish Fed repricing

Euro

EUR/GBP: Unchanged at £0.86

EUR/USD: Down from $1.16 to $1.13

The euro initially got off to a robust start in June, with the single currency being underpinned by the European Central Bank’s (ECB) interest rate hike.

However, the single currency struggled to sustain this support amid renewed USD demand and subsequent comments from ECB President Christine Lagarde, which tempered bets for further hikes.

Turning to July, the euro may face headwinds if Eurozone economic releases continue to point to weakness in the bloc through the end of the second quarter.

Pound

GBP/EUR: Unchanged at €1.15

GBP/USD: Down from $1.34 to $1.32

UK political developments kept GBP investors on their toes in recent weeks, with Andy Burnham’s convincing by-election victory and Prime Minister Keir Starmer’s resignation infusing volatility into the pound.

At the same time, the Bank of England’s (BoE) decision to leave interest rates unchanged, coupled with its revised inflation forecasts, sapped expectations the bank may hike interest rates later in the year.

Looking ahead, Burnham’s first couple of weeks in 10 Downing Street will be closely watched by markets in July, with a particular focus on whether he can keep the bond market on board with his fiscal policies.

US Dollar

USD/GBP: Up from £0.74 to £0.75

USD/EUR: Up from €0.85 to €0.87

The US dollar enjoyed strong support through June, striking new multi-month highs against both the pound and euro.

This upside was initially linked to Middle East uncertainty before a hawkish turn by the Federal Reserve helped to accelerate the US dollar’s gains despite the announcement of a US-Iran peace agreement.

Upcoming US economic indicators will be in the spotlight for USD investors in the coming weeks, with further signs of resilience potentially strengthening Fed rate hike expectations.

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