The below key drivers are likely to impact investor risk sentiment and FX markets in July
- The UK election result had little impact on the pound and experts are not predicting major monetary policy changes for the next fiscal year or so.
- US inflation is declining but local economic data will need to be monitored for indication of whether the Federal Reserve may start rate cuts.
- The surprise French election prompted some euro movement but not enough to concern experts. Market focus is on the upcoming ECB interest rate decision and inflation data.
Read on for insights into factors affecting the key currencies, or download as a PDF.
EUR Euro
In June, French President Macron’s surprise call for a snap election caused the euro to fall. Despite lingering economic uncertainty, the euro recovered slightly as the far-right failed to secure a majority.
The euro fell after French President, Emmanual Macron shocked markets by calling a snap parliamentary election on June 9. After L’Europe Ensemble underperformed at the European elections, Macron took France to the polls to vote for their members of parliament over the course of two votes.
The economic uncertainty has hung over both currencies for much of June, pushing EURGBP below the 0.8450 level for the first time since August 2022. The euro did recoup some of its losses by month-end as it appears the far-right Rassemblement National party may not win enough seats in the second round of voting to form a government.
Looking ahead, the next European Central Bank (ECB) interest rate decision is due on July 18 with ECB President, Christine Lagarde expected to pause the rate-cutting cycle after the first cut in borrowing costs in eight years was unveiled at the June meeting. Markets are expecting another cut in rates in September but expect Lagarde to make reference to inflation remaining above target in her July press conference. With that in mind, the focus will likely be on the latest inflation numbers as well as any potential fallout from the second round of the French elections. We’ll find out on July 31.
Expected ranges:
- EURUSD 1.0680–1.1000
- EURGBP 0.8395–0.8570
GBP Sterling
In July, the pound stayed steady amid Labour’s win in the UK General Election. Markets welcome political stability over economic change and is hopeful for economic expansion and increased business investment.
The big news at the start of July was Labour’s victory in the UK General Election. The party won 412 seats out of a possible 650 in the Houses of Parliament, making Sir Keir Starmer the new Prime Minister. Voters switching to Reform UK left the Tories with only 121 seats, down from 371 previously.
The pound’s reaction to the victory was relatively muted. Usually, the prospect of a Labour government can be detrimental to local currency due to fears of tax rises and policies that aren’t ‘business friendly’, however, it appears there will be few fiscal changes in the next year or two. Businesses and markets are more interested in stability after the constant chopping of changing of leadership by Conservatives since the Brexit vote in 2016.
Away from politics, inflation returned to its 2% target on June 19, so the Bank of England (BoE) holding interest rates at 5.25% at its June 20 meeting was expected. GBPUSD was fairly rangebound for the month trading between 1.26 and 1.2850.
Looking ahead, May’s GDP numbers are scheduled for July 11. Holders of the pound are hoping we see some economic expansion after the April reading showed halted growth. Markets are expecting a 0.25% reduction in borrowing costs to be unveiled by BoE Governor Andrew Bailey at the interest rate decision on August 1. It would be the first cut in rates since the pandemic.
Expected ranges:
- GBPUSD 1.2630–1.3000
- GBPEUR 1.1670–1.1910
AUD Australian dollar
In June, the Australian dollar traded narrowly amid mixed signals. It gained some ground due to US rate cut expectations but faced resistance from rising US yields and weaker Asian currencies.
The Australian dollar traded in a narrow range through much of June. Having touched lows at 0.6580 through the first week of June, the AUD then recovered back above US$0.66, tracking between US$0.6620 and US$0.6680 for the month.
A string of softer-than-anticipated macroeconomic indicators in the US elevated calls for the Federal Reserve (Fed) to consider bringing forward an interest rate cut. Markets predicting a possible September policy adjustment helped to add a floor beneath the AUD.
With the gap in yields widening, the People’s Bank of China applied a series of lower daily fixes to the CNY, amplifying an already bearish bias and allowing the USD to move back toward 7.30. The yuan weakness coupled with further softness in the Japanese yen acted as a drag on the AUD, limiting its strength. A disappointing US ISM Services report in July encouraged a renewed risk demand as fears surrounding the French Election were tempered, pitching the AUD above US$0.67.
The AUD surged above US$0.6730 marking its highest level since January 2nd.
Experts will be watching the US inflation and labour market performance as the US Non-farm payroll numbers, CPI data and the PCE deflator index are key markers for direction. Positive data could bring the AUD back to June ranges while negative data could push the Aussie dollar to new trading highs.
Expected ranges:
- AUDUSD 0.6500–0.6750
- AUDGBP 0.5100–0.53
- AUDNZD 1.0680–1.0900
- AUDEUR 0.6050-0.6250
NZD New Zealand dollar
In June, the New Zealand dollar hit new highs before falling. Initially boosted by a strong RBNZ policy, it later declined due to weaker domestic data and global pressures.
The New Zealand dollar enjoyed mixed fortunes through June, marking fresh 2024 highs before sliding to mark a 6-week low.
An RBNZ policy update in early June saw the NZD into a period of near-term outperformance, not just against the dollar but against all major counterparts. Having tested a break above 0.62 and a high of 0.6216 on June 12, the NZD has slipped back to test a break below US$0.61.
Softer-than-anticipated domestic business conditions and deteriorating labour market conditions extinguished calls for the RBNZ to raise rates one last time. Instead, markets turned their focus beyond near-term inflation pressure and toward longer-run rate expectations.
The RBNZ is expected to leave rates on hold through 2024 and into at least Q2 2025 with the domestic outlook likely meaning a retracement in interest rates once inflation moves back within the RBNZ’s target band.
A dour US ISM services report in July encouraged renewed risk demand as fears surrounding the French Election tempered, helping the NZD to rebound back above US$0.61.
Attentions are now on US CPI data and the PCE deflator index data as key macroeconomic markers. Any surprise upside to these could dampen calls for the Federal Reserve to ease monetary policy conditions, pitching the NZD back toward its June trading handle. Negative data could see the NZD track toward US$0.62 and enter a new higher trading band.
Expected ranges:
- NZDUSD 0.6000–0.6300
- NZDGBP 0.4750–0.4920
- NZDAUD 0.9000–0.9300
- NZDEUR 0.5500–0.5700
USD United States dollar
June saw President Biden struggle against candidate Trump in their debate, sparking Democratic calls for Biden to drop out. The Fed held rates steady, boosting the US dollar as strong US data emerged.
US politics dominated the news in June as the first televised debate between Joe Biden and Presidential rival Donald Trump calls from Democrats for the 81-year-old Biden to pull out of the race. In his own words, Biden “screwed up” in the debate and blamed his punishing travel schedule for him losing his train of thought and failing to answer questions.
The June 12 interest rate decision from the Federal Reserve (Fed) saw no change in rates from their elevated 5.5% with markets still eyeing the Sept 18 meeting as when we will see the first cut.
The US dollar strengthened slightly after the Fed decision with EURUSD falling back to US$1.08 and eventually dipping under US$1.07 towards the end of the month primarily due to some strong US Services and Manufacturing PMI’s as well the upheaval in French politics.
Looking ahead, we have US inflation data due on July 11 with CPI expected to fall back to 3.1% from 3.3%. We also have the first indication of growth for Q2 scheduled for July 25. The previous quarter missed forecast, coming in at 1.6% y/y. Experts will be hoping for a reacceleration of economic expansion to be shown as the US enters the summer.
Expected range:
- DXY 103.50-106.60
JPY Japanese yen
The yen hit a 38-year low against the US dollar in early July. Despite efforts to stabilise it, Japan’s currency keeps weakening, raising inflation worries.
The USDJPY lost ground and reached a 38-year high of 161.27, underscoring the yen’s significant depreciation.
The yen remains in the spotlight, plummeting to 161 by the end of June. Approximately 5-6 points of this depreciation occurred in June, alone. Despite interventions in April and May, the yen has resumed its weakening trajectory. This “rapid and one-sided” decline of the yen and its impact on inflation has become a significant concern for Japanese authorities.
During the June 14 meeting, the Bank of Japan (BoJ) unanimously maintained its short-term policy rate target at 0-0.1% and continued its monthly Japanese Government Bonds (JGB) purchase pace at around 6 trillion yen.
Tokyo’s CPI exceeded expectations, with core CPI at 2.1% YoY. This is expected to help the BoJ make the case to raise interest rates as early as July. BoJ Governor, Kazuo Ueda has stated the bank will monitor inflation, economic developments and yen weakness, adjusting policy as necessary.
The US Treasury Department added Japan to its “monitoring list” for forex practices, though it stopped short of labelling it a currency manipulator. Authorities in Japan have taken measures to prop up the JPY and are ready to take additional steps to prevent the further spiral of the yen.
Markets are expecting the yen’s weakness to extend in the upcoming months unless intervention comes into play.
Expected ranges:
- USDJPY 145.00–167.00
- EURJPY 155.00–179.00
CAD Canadian dollar
In June, the Canadian dollar traded within a tight range. It dipped after a Bank of Canada interest rate cut but rebounded thanks to strong inflation data, ending the month on a positive note.
The Canadian dollar bounced through much of June between US$0.7250 and US$0.7350. Starting the month near the middle of that range, the CAD tipped toward a 2-month low at US$0.7254 after the Bank of Canada elected to cut its benchmark interest rate. Making the BoC one of the first central banks to officially commence an easing cycle.
The CAD slowly recovered gains through the rest of June, moving back above US$0.73 following a stronger-than-anticipated May inflation print.
Having met resistance on moves approaching US$0.7325, the CAD then tracked sideways through the end of the month before surging through the first week of July to break resistance and mark highs not seen since early April.
Fears surrounding the French Election and a dour ISM Services report offered the CAD the chance to reverse a break below US$0.7280.
Our attention remains on US inflation and labour market performance. Experts will be closely monitoring US Non-farm payroll numbers, CPI data and the PCE deflator index as key markers to this narrative. An increase across these and other US macro indicators could dampen calls for the Fed to ease monetary policy conditions and pitch the CAD back toward its June trading handle. In contrast, softening data could weigh on treasury yields and elevate the likelihood of a rate cut, potentially allowing the CAD to enter a new higher trading band.
Expected ranges:
- CADUSD 0.7250–0.7450
- CADGBP 0.5600–0.5900
- CADEUR 0.6700-0.6900
SGD Singapore dollar
In June, the Singapore dollar fell slightly against the US dollar due to Fed’s “higher for longer” rate stance. Singapore’s inflation remained steady, with stable interest rates and cautious economic growth.
The Singapore dollar trended lower against the US dollar through June, pressured by the Federal Reserve’s “higher for longer” rate stance.
In Singapore, core inflation held steady at 3.1% in May, unchanged from April and March. The Monetary Authority of Singapore (MAS) and the Ministry of Trade and Industry anticipate both headline and core inflation to average between 2.5% and 3.5% throughout 2024.
Industrial production increased by 1.1% m/m (seasonally adjusted) in May (7.5% prior). Singapore’s PMI remained in expansionary territory but dipped slightly to 50.4 in June (50.6 prior).
Singapore’s short-term interest rates are stable, reflecting the MAS’s current policy satisfaction. According to MAS’s June 2024 Survey of Professional Forecasters, experts foresee no changes to Singapore’s exchange rate policy in the upcoming reviews scheduled for July and October 2024.
Geopolitical tensions pose the main downside risk to Singapore’s economy, alongside concerns about inflation, global growth slowdown, and weaker conditions in China. Conversely, stronger growth in China could potentially bolster Singapore’s economy.
Experts are closely monitoring US economic data for cues on the USD. In the short term, unless there are surprises in US inflation and job market trends, the SGDUSD pair is expected to trade within a stable range. Singapore’s neutral stance toward both China and the US reduces the impact of uncertainties from the US elections compared to other currencies.
Expected range:
- USDSGD 1.3420–1.3600
HKD Hong Kong dollar
Despite economic challenges, the Hong Kong dollar remained stable in June, thanks to its peg to the US dollar.
The USDHKD pair traded in a range through June, around the 7.8100 level.
On June 13, the Hong Kong Monetary Authority (HKMA) maintained its base rate at 5.75%, aligning with the US Federal Reserve’s (Fed) decision to keep rates unchanged. The HKMA highlighted that mixed economic data and high inflation contribute to the uncertainty surrounding the timing of future Fed rate cuts, suggesting that the high interest rate environment may persist. The HKMA reassured that Hong Kong’s financial markets and the HKD remain stable but cautioned that interbank rates might stay elevated.
Hong Kong’s unemployment rate remained steady at 3% for the three months ending in May 2024, consistent with the previous two periods. The Consumer Price Index (CPI) reported a 1.2% y/y increase for May 2024 (1.1% prior). Hong Kong’s retail sales fell by -11.5% y/y in May, marking the third consecutive month of decline. Ongoing challenges such as tight financial conditions, a struggling property market, and slow growth in mainland China are expected to continue affecting the economy throughout the year.
As of July 3, the Hang Seng Index has declined by approximately 9% since its peak in May. Investor caution over ongoing EU-China trade negotiations on tariffs has overshadowed gains in the tech sector.
The US election will influence US-China relations significantly. The HKD will likely remain stable due to its peg to the USD, meaning Hong Kong’s monetary policy is effectively set by the Fed.
Expected range:
- USDHKD 7.7950 – 7.8200
Currency implications of the 2024 elections Read the article.
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