Pound continues to nudge higher versus euro

The euro and sterling attempted to push higher against the dollar yesterday, getting up to highs of around $1.1450 and just over $1.34 respectively, but they haven’t been able to sustain their gains, not helped by reports of Iranian attacks on tankers in the Strait of Hormuz. They are trading at around $1.1430 and $1.3380 this morning, respectively unchanged and slightly firmer relative to yesterday morning’s levels. Hence the pound continues to nudge higher against the single currency, now at around £0.8530, levels last seen in late June 2025.

Bond markets were fairly quiet. US Treasuries outperformed as yields ended slightly lower on the day, while German and UK yields were both marginally higher (with modest curve steepening the order of the day across markets). It was a mixed day in equity markets. European stocks fell back a little following two days of solid gains, while US indices closed in the black, led by the Nasdaq which added more than 1%.

The US economy remains relatively resilient judging by the latest ISM services survey. The headline index fell back in June but remained in solid expansionary territory at a reading of 54.0, while the employment index moved above the key 50 level for the first time since February. Input costs eased last month albeit they remained elevated.

Fed Governor Waller says the US labour market is showing signs of stabilizing, allowing policymakers to focus on inflation, noting that the “risks have completely flipped around…that changes how you might want to think about (monetary) policy.” While the market has pared back expectations for rate hikes lately, which has taken the dollar off its recent highs, it is still pricing in about 38bps of policy tightening by next spring.

For the day ahead, US economic data includes the ADP weekly employment report, trade balance (May), and the New York Fed’s June survey of inflation expectations, while the Bank of England publishes its latest Financial Stability Report.