Key Drivers: U.S. Fiscal Reform, Budget Pressures, and Geopolitics
Market focus returned to U.S. fiscal and tax reform as Congress passed Donald Trump’s “Big, Beautiful Bill”—a major trigger for both FX and U.S. Treasuries. The legislation is projected to add $3.3 trillion to the federal deficit over a decade, including $150 billion each for defense and border enforcement, funded by cuts to healthcare and social support. This spurred fresh concerns over the long-term sustainability of U.S. public finances.
Non-financial risks intensified amid a public standoff between the White House and the Federal Reserve. Fed Chair Jerome Powell, under fire from the President for keeping rates high, reaffirmed at the central bank forum in Portugal that trade war uncertainty precludes a rate cut. Trump responded with direct calls for Powell’s resignation, which weighed further on the dollar—even as robust jobs data were released—by fueling fears about Fed politicization and the U.S. credit outlook.
Meanwhile, with the July 9 tariffs deadline approaching, Washington made little tangible progress on major trade deals with Japan, South Korea, or the EU—despite signing an agreement with Vietnam. Trump pledged to start issuing notices of new tariffs, rattling already-nervous markets.
UK Focus: Political Uncertainty and Gilt Yields
In parallel, the pound came under pressure from rising UK gilt yields and government instability. Chancellor Rachel Reeves became the center of political debate after PM Keir Starmer dodged questions about her future in Parliament. Despite official support, markets reacted negatively, triggering a technical pullback in GBP/USD as investors locked in profits.
British financial markets remained sensitive to global headlines: upbeat news on GDP and retail sales alternated with concerns over fiscal and political risks. Caution prevailed ahead of upcoming GDP, industrial, and manufacturing output data—key releases that could set the tone for next week’s sterling moves.
U.S. Macro: Jobs Growth but Policy Questions Remain
Early-month U.S. macro data were mixed. The BLS reported job openings rose to 7.769 million, while Nonfarm Payrolls beat expectations with a 147K June gain (vs. +110K forecast). Unemployment fell to 4.1% (consensus: 4.3%), with average hourly earnings easing to 3.7% y/y. These figures briefly cooled Fed rate cut speculation, lending short-term support to the dollar.
The boost quickly faded, however, as markets shifted their focus to the U.S.’s underlying fiscal and trade risks. PMI indices added some support—manufacturing PMI up to 49.0 (from 48.5), services up to 50.8—signaling modest growth, but the dollar remained in a zone of uncertainty.
Eurozone & UK: Cautious Growth, Muted Inflation
Europe continued to post controlled inflation: preliminary eurozone HICP held at 2% y/y in June, with the core measure at 2.3%. Germany’s inflation slowed to 2%, and retail sales advanced 1.9% in May. Markets await final inflation and new retail data in the coming days—potential catalysts for fresh moves in both the euro and sterling.
Week Ahead: Key Data and Policy Triggers
In the week ahead, the market will focus on the FOMC’s June meeting minutes for clues on future U.S. rate policy. The UK will release GDP, industrial, and manufacturing output on Friday, while the U.S. posts budget balance data. GBP/USD traders will also watch developments in U.S. trade negotiations, as any signals of progress or escalation could swiftly change market dynamics.
GBP/USD Technical Outlook: Bullish Momentum Holds Key Support
From a technical standpoint, after a climb to 1.3789 and a sharp correction to 1.3563, GBP/USD stabilized above critical support levels—February 2022’s high (1.3643) and the 21-day SMA (1.3588). The RSI remains above 57, signaling bullish control. Upside targets are 1.3750 and 1.3800; a breakout could open the door to 1.3875 and the long-term peak at 1.3983. On a deeper pullback, first support is at 1.3588, followed by 1.3445 (the April high and 50-day SMA).
GBP/USD: Volatility and New Triggers