- The U.S. non-farm employment data for June, released last Thursday, was weaker than expected, leading bulls to continue reducing bets on a Federal Reserve rate hike this year. The dollar index retreated from the 13-month high it had previously reached, with marginal adjustments in bullish funds in the forex market, and risk preferences across multiple asset classes undergoing restructuring during the policy expectation reassessment period.
- The structural trends in the commodity market provided external support for non-U.S. currencies. As the U.S. and Iran reached a framework agreement, driving international oil prices sharply lower from their highs, the UK economy, previously threatened by stagflation risks due to geopolitical premium surges, found some relief. The easing of pressure on the commodity supply chain prompted cross-border arbitrage funds to reassess pound assets.
- In addition to the improvement in the external macro environment, the cooling of domestic political uncertainty in the UK further bolstered the confidence of forex market bulls. The compliance commitment to fiscal discipline by potential candidates for the next Prime Minister effectively alleviated concerns of macro funds about the tail risk of sovereign debt expansion, driving the pound to exhibit fundamental resilience beyond market expectations.
Weak U.S. Non-Farm Data Cools Rate Hike Expectations, Dollar Under Pressure Boosts Pound
Affected by the aftermath of weaker-than-expected U.S. non-farm employment data, traders significantly reduced their bets on further tightening by the Federal Open Market Committee (FOMC). The dollar index (DXY) retreated from a 13-month high, pushing the pound against the dollar (GBP/USD) to rise to 1.3401 at one point during the day, marking a three-week high since June 17. Fund flow monitoring shows that macro bulls are gradually unwinding previously overcrowded dollar long positions, shifting to non-U.S. currencies with high asset resilience and interest rate protection.
Falling Energy Prices Ease Inflation Burden, Boost UK Economic Fundamentals
The price correction in the commodity market has become the core catalyst for this forex market fluctuation. The U.S.-Iran framework agreement led to a significant drop in international oil prices, dispelling the stagflation shadow that threatened the UK's growth prospects earlier this year due to geopolitical conflicts causing oil prices to soar. The downward pressure on energy costs improved the UK's current account expectations, attracting some commodity arbitrage funds back to the forex market, providing upward support for the pound from a supply-demand fundamental perspective.
Political Fiscal Discipline Commitment Eases Concerns, Market Gradually Absorbs Pound's Negative Premium
In the UK political arena, Andy Burnham, a potential candidate for the next Prime Minister, publicly committed to strictly adhering to existing fiscal rules. This statement effectively reassured overseas fixed income and forex investors who were previously concerned that a left-wing government might lead to a significant expansion of public spending. As the risk premium of fiscal mismanagement was quickly absorbed by the market, long-term allocation funds showed a noticeably reduced aversion to UK macro assets, with the pound demonstrating unexpected stability and resilience amid global political turmoil.
Eurozone Inflation Slowdown Pressures Euro, Cross-Pair Pound Reaches High Plateau
The divergence in monetary policy expectations between the European Central Bank and the Federal Reserve is particularly evident in cross-pair trading. Last week's data showed that the eurozone's June inflation rate was lower than expected, triggering market expectations of a peak in the European Central Bank's rate hike cycle, dragging the euro against the pound (EUR/GBP) to continue fluctuating near a 13-month low of 0.8541. This interest rate differential logic pushed the pound against the euro to a new high in nearly a year, reflecting the sectoral differentiation in macro fund asset allocation within Europe.
