FX Daily: Sterling catches a break
The desk interprets recent developments with the GBP favorably, as the currency gains traction following Kevin Warsh's comments at Sintra, indicating a delay in aggressive Fed rate signaling. Per the full note , the EUR/GBP has broken below significant support levels around 0.8600, indicating a shift in market sentiment. The anticipated US June jobs report may play a crucial role in establishing dollar direction, but even a strong print is unlikely to upend the cautious optimism surrounding the pound, especially ahead of pivotal economic data.
What the desk is arguing
The desk sees a supportive environment for GBP, as evidenced by the recent break below the 0.8600 mark in the EUR/GBP, marking a significant technical shift. This development aligns with Warsh's deliberate avoidance of hawkish rhetoric, suggesting a desire for market-driven expectations, which may empower the GBP moving forward. The upcoming US jobs report is crucial, but its impact may be muted given the current trends in FX markets.
Market reactions to Warsh's comments reflect an easing in hawkish expectations, which led to a mild decline in the dollar. As such, traders seem to be digesting this shift, with significant implications for the positioning of GBP in the near term as we await the data releases.
Where it sits in our coverage
For our internal coverage, the consensus target for GBP/USD stands at 1.1700, with a range from 1.1200 to 1.2000 by Dec-26. Notable firm targets include: - hsbc: Dec-26 target at 1.1800 - jpmorgan: Dec-26 target at 1.2000 - deutschebank: Dec-26 target at 1.2500
This view slightly diverges from the cross-firm consensus, as our outlook is centrally located in the range and reflects a cautious optimism that sits comfortably within expectations while hints of potential upside loom larger.
How other firms see it
Firms such as goldman and citi remain optimistic on GBP, maintaining relatively bullish targets, while citi and mufg express slightly more conservative views as they align closer to the lower end of future forecasts.
Traders should remain vigilant for signals around USD/JPY, especially given its sensitivity to US economic data, which in conjunction with GBP dynamics could offer insights into broader FX trends. The relationship between EUR/GBP and the ECB's stance is also worth monitoring, as shifting narratives could further impact pound dynamics.
How firms align with this view
Aligned with the desk view
Key takeaways
- 01GBP benefits from supportive factors amid shifting Fed expectations.
- 02The June jobs report may provide clarity for dollar strength.
- 03Break below 0.8600 in EUR/GBP highlights market sentiment change.
- 04Cautious optimism persists for GBP amid broader market dynamics.
Market implications
Traders should watch the 0.8600 level in EUR/GBP as a potential floor, while the upcoming US jobs data could serve as a catalyst for positioning in GBP. Keep an eye on any shifts from central banks that may alter market dynamics ahead of key data releases.
Risks to this view
A significant miss on the US jobs report could undermine the current GBP bullish sentiment, leading to a retracement in both GBP and potential upward pressure on the USD. Additionally, an unexpected shift in Fed rhetoric could prompt volatility across currency pairs.
EUR/USD — All Desk Targets
| Firm | Stance | YE 2026 |
|---|---|---|
Rabobank | Bearish | 1.1000 |
ING | Bullish | 1.1300 |
MUFG | Neutral | 1.1200 |
Articles FX Daily: Sterling catches a break 07:30 FX Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download True to his word, new Fed Chair Kevin Warsh gave little indication of the Fed's latest views at his panel appearance yesterday. Instead, he seems happy to let the market make up its own mind on the path for US rates. Fresh input for that decision-making comes from today's US June jobs report, where a strong number is expected.
Elsewhere, GBP is doing better Chris Turner , Frantisek Taborsky and Francesco Pesole EUR/GBP finally broke below big support at 0.8600/8610 yesterday USD: Dollar price action quite constructive It looks like FX and interest rate markets (plus this author) were getting a little ahead of themselves in expecting confirmation of hawkish views from Kevin Warsh at Sintra yesterday. Most of the panel discussion involved rubbishing forward guidance as a monetary policy tool and Warsh studiously avoided commenting on any of the Fed's or his own thinking. About 20 minutes into the discussion, the market decided that no hawkish rhetoric would be forthcoming and US short-dated rates dropped 5-6bp and the dollar sold off.
Those moves have since been retraced. When the dust settled, it looked like the market was taking the view that Warsh had no complaints about Fed tightening expectations built in by the market, which had helped to lower inflation expectations. In consequence, Warsh seems happy to let the data drive market expectations and keep the monetary policy debate in-house for FOMC meetings.
On that subject, today sees the June NFP reading. Consensus is around +115k, with a whisper number near +140k. The unemployment rate is expected to remain low at 4.3%.
We suspect that whatever the number, the dollar can remain relatively supported. Barring a big miss and massive downward revisions to previous months, the Fed's position is that, given the static size of the labour force, even a number close to zero does not need to see the unemployment rate pick up. DXY sits close to the middle of a one-week trading range.
Another 100k+ NFP today could see a move back to 101.50/80 on the view that the Fed could hike sooner than expected. One wild card to consider is that should the data come in soft, Japanese authorities might use the opportunity to sell a lot of USD/JPY – thus, traders will have to stay agile. Chris Turner EUR: A little weakness coming through The euro was a little softer on the crosses yesterday.
Softer eurozone inflation figures raise questions about whether the ECB needs to follow up with a hike in September after all. Here, a 15bp hike is currently priced for that meeting. However, our eurozone macro team warn that inflation could pick up over the coming months as many government energy subsidy measures expire at the end of June.
Sources & References
How we cover this story
Related news on this pair
EUR/USD Weekly Forecast: Greenback holds firm despite looming US political stalemate
USD resilience despite US political uncertainty suggests safe-haven demand remains the dominant driver; EUR/USD breakdown below 1.1200 month-range may accelerate if risk sentiment deteriorates.
Euro: Rotation into Dollar cash caps gains against US Dollar – ING
EUR/USD upside capped by continued dollar cash rotation despite US tech weakness; Treasury correlation reassertion limits euro tactical strength.
EUR/USD Price Forecast: Declines below 1.1200 as bearish bias holds below key technical resistance
EUR/USD breaks below 1.1200 technical level ahead of data events; watch for Eurozone retail sales and US nonfarm payroll reactions.