Written by the Market Insights Team
Dollar’s modest rebound before crucial data
George Vessey – Lead FX & Macro Strategist
The US dollar staged a modest rebound on Tuesday as investors processed a mixed set of US economic data, offering fresh insights into the Federal Reserve’s (Fed) rate path. While the rebound lifted the dollar off its 6-week low, lingering growth concerns and uncertainty over trade negotiations continued to limit further upside as President Trump doubles steel and aluminium tariffs from 25% to 50%.
On the labour front, JOLTs job openings unexpectedly rose to 7.39 million in April, above estimates and March’s revised 7.2 million, reinforcing labour market resilience. However, factory orders fell sharply by 3.7%, signalling manufacturing weakness and raising questions about broader economic momentum. Today, the ADP employment report and ISM services PMI will be crucial ahead of Friday’s non-farm payrolls report, all of which will help determine the Fed’s policy outlook and dollar’s direction.
Short-term dollar drivers remain tied to evolving Fed policy expectations, with officials signalling a preference for holding rates steady despite mounting pressure for cuts. Escalating trade tensions further complicate the outlook, with the OECD lowering its US growth forecast to 1.6% in 2025 and 1.5% in 2026, citing global uncertainty.
Beyond short-term fluctuations, a bigger concern for long-term dollar positioning is the growing unease around de-dollarization. Trump’s proposed “revenge tax”—Section 899 of his bill—introduces yet another disincentive for foreign investors, further eroding confidence in Treasury bonds and US assets.
Already, erratic trade policies and the nation’s deteriorating fiscal accounts have put pressure on dollar-denominated holdings, prompting global institutions to reassess exposure. If foreign investors perceive heightened risks, capital flow dynamics may shift further away from the dollar, reinforcing the long-term challenges facing the currency.
Eurozone inflation below target ahead of ECB meeting
George Vessey – Lead FX & Macro Strategist
The euro faced selling pressure on Tuesday, weighed down by softer-than-expected inflation data and stronger US economic releases, reinforcing short-term headwinds for the currency. A downgraded global growth outlook from the OECD and heightened political uncertainty in the Netherlands added to investor caution. Trade policy concerns also remained in focus, with the US pushing for final offers in negotiations by Wednesday, just days after renewed tariff threats.
Ahead of the European Central bank’s (ECB) meeting this Thursday we had some interesting inflation data out of Europe supporting the case for interest rates to be lowered further. Services inflation fell to 3.2% from 4%. A sharp decline in core inflation to 2.3% and headline inflation to 1.9% in May all signal that price pressures may undershoot the ECB’s target, cementing the view that the deposit rate will be cut by 25bps to 2% on Thursday. This was one factor weighing the euro but one that could be short-lived. Trade-related uncertainties have so far had a muted impact on Eurozone growth, with global commodity price declines and euro strength against the dollar helping to cushion inflationary pressures. As price concerns ease, the ECB’s focus is shifting toward economic growth, reinforcing a supportive backdrop for the euro in the medium term.
Moreover, if we do see more of a pick-up in FX volatility, the euro is expected to benefit, as it has over the past few months, as an attractive alternative to the dollar. In the very short term, holding above $1.1285 will be key if we want to see a retest of the $1.16 handle this summer. But traders are looking beyond short-term noise and positioning for long-term euro gains as the skew trades in favour of the euro across tenors, with $1.20 a potential target by year-end.
Pound slumps as dovish signals dominate
Antonio Ruggiero – FX & Macro Strategist
The pound tumbled against major pairs yesterday, wiping out early-week gains. Even against the dollar—recently the weakest link among majors—sterling struggled, with GBP/USD briefly dipping below the $1.34 handle before rebounding.
With little new on the trade front—a factor that has recently weighed on the dollar, strong U.S. jobs data and an equity rally fueled dollar demand, helping it outperform sterling.
The pound’s decline was further driven by dovish signals from the Bank of England, as Governor Andrew Bailey, Deputy Governor Sarah Breeden, and rate-setters Catherine Mann and Swati Dhingra addressed the Treasury Committee in Parliament. Their remarks reinforced expectations that the path for rate cuts remains downward but increasingly uncertain, largely due to global market volatility—particularly stemming from U.S. trade policies. As a result, markets now price in a 62% probability of a second rate cut by year-end.
Adding to the bearish pound sentiment, Mann’s earlier comments on quantitative tightening resurfaced. She warned that ongoing bond sales could stunt economic growth by keeping long-dated yields elevated, creating a policy tension between rate cuts and balance sheet reduction. Markets took the messaging as unmistakably dovish—yields dropped, and the pound followed suit.
Despite the dip, the pound’s performance remains resilient in the bigger picture. A strong domestic backdrop, combined with ongoing uncertainty in the US, should continue to support sterling, with GBP/USD still up over 1.5% year-to-date. Overall, sentiment toward the currency remains firmly bullish.
Pound pulls back across the board
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: June 2-6
All times are in BST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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