FOREX: GBP Holds Bounce as Starmer Backs Up Chancellor, Affirms Fiscal Rules
Jul-03 08:57
- GBP is holding the entirety of the bounce off Wednesday lows, with GBP/USD over a point off yesterday's lows as the UK PM looks to bolster the Chancellor's position and reinforce to markets that she will remain in place for the long-term, despite rampant speculation over her departure during the Wednesday session.
- The durability of today's GBP strength will depend on the market buying into the view that the government have sufficient fiscal options to head off any market instability later this year, particularly as the fiscal headroom available into the Autumn Budget was much diminished by the passage of a watered down welfare bill earlier this week.
- GBP spot volatility this week serves as a further reminder that there remains a considerable political risk premium on the currency, and surprising political newsflow can still hold sway over both rates markets and the currency. This keeps markets on alert for further upside risks in EUR/GBP, which sees resistance at 0.8670 and 0.8715.
- The USD Index is flat-to-higher headed through the crossover. Markets are looking to test whether prices have successfully formed a base at 96.377 - this week's low - which could prompt a S/T correction and recovery for prices off oversold levels. With Fed pricing for the July meeting indicating 25% chance of a rate cut, the market may look to resolve this pricing one way or the other on today's jobs print.
- The US jobs report is the primary for the US session, brought forward by one day from its usual release due to the July 4th market holidays on Friday. Markets expect the US to have added 106k jobs over the month, but downside risks pervade after ADP Employment Change missed expectations and the market whisper number continues to drift: now at +95k.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
FOREX: Markets Consider Potential Drivers for S/T USD Relief Rally
Jun-03 08:53
With a clamour of recent sell-side calls for broader USD losses, some note bullish factors that could provide a reprieve for the dollar in the short-term:
- We wrote yesterday that derivatives markets often move with a higher beta to spot - so it's a surprise to see a synthetic USD Index risk reversal proving more resilient to the recent sell-off relative to today's price - which could be containing the next leg lower for the dollar.
- Deutsche Bank's latest World Outlook sees markets on a turbulent, but sustained, path toward de-escalation of tariff headlines, and while there's likely to be prolonged uncertainty and a notable slowdown in US growth over H2, the de-escalation will support growth earlier relative to prior expectations.
- MUFG write that the Fed need to see clearer evidence that the US labour market is loosening in order to have more confidence to resume rate cuts, and should NFP meet expectations of +130k on Friday, this may not be weak enough to significantly bring forward expectations for rate cuts from September.
- ING see trade developments as remaining crucial, and while China is gaining leverage over the US through control of chip supply, Trump and Xi are to speak this week, leaving room for a positive surprise that could help the dollar at some point this week.
EUROPEAN INFLATION: Services Leads Austria CPI Moderation
Jun-03 08:51
Austrian HICP flash inflation eased by 0.3pp to 3.0% Y/Y in May along with -0.1% M/M.
- CPI headline inflation also dipped -0.1% M/M although saw a steadier moderation of 0.1pp to the same 3.0% Y/Y.
- CPI details:
- "Services remain the main driver of inflation with prices rising by 4.4% Y/Y - still strong, though slightly less than in recent months [4.8% April]. Prices for industrial goods saw only a slight increase of 0.8% [0.9% April]", the statistics office adds.
- "Food, tobacco and alcohol also saw an above-average price increase of 3.3% [3.2% Apr]. In contrast, energy prices rose by just 1.3% [0.7% Apr], below the overall inflation rate. This was largely due to significantly lower fuel prices compared to the previous year, which offset the impact of higher electricity costs."
- For reference, Austria represents 3.4% of the overall 2025 Eurozone HICP basket.
SPAIN T-BILL AUCTION RESULTS: 6/12-month letras
Jun-03 08:49
| Type | 6-month letras | 12-month letras |
| Maturity | Dec 5, 2025 | Jun 5, 2026 |
| Amount | E1.853bln | E3.927bln |
| Target | E5.0-6.0bln | Shared |
| Previous | E1.692bln | E4.075bln |
| Avg yield | 1.890% | 1.878% |
| Previous | 1.937% | 1.886% |
| Bid-to-cover | 2.02x | 1.45x |
| Previous | 2.42x | 1.53x |
| Previous date | May 06, 2025 | May 06, 2025 |
