Weekly Market Briefing - 10th July 2026

Markets were shaped this week by renewed US-Iran tensions, higher oil prices, hawkish central bank commentary, and continued movement across major currency pairs. 

The US dollar was mixed as markets balanced weaker labour data from the previous week against fresh inflation concerns and hawkish Federal Reserve signals.

Sterling was one of the stronger major currencies, supported by Bank of England rate expectations and easing UK political uncertainty. 

The yen remained fragile but found some support after Japanese officials encouraged greater domestic investment, while the euro traded cautiously as softer inflation reduced the urgency for further ECB tightening. 

Geopolitically, markets remained focused on the Strait of Hormuz after renewed US-Iran fighting disrupted tanker flows and lifted crude prices. Oil still finished the week higher, keeping inflation risk in focus for central banks. Investors are now looking ahead to next week’s US inflation data, Federal Reserve testimony and further developments in the Middle East.

Data/Figures

Federal Reserve - USD

The US dollar was mixed this week. It lost some ground against sterling, but broader support remained because markets continued to price the possibility that the Federal Reserve may need to tighten again later in the year.

The Fed kept the target range for the federal funds rate at 3.50%–3.75% at its June meeting. This week’s Fed minutes showed no clear single message on the rate path, but officials remained concerned about inflation risk. 

The dollar therefore did not have a straightforward week. On one side, softer labour market data from the previous week reduced urgency for an immediate hike. On the other side, rising oil prices and hawkish Fed commentary kept the dollar supported from a rates perspective.

Asset Manager / Institutional positioning also remained supportive for the dollar. The latest COT data showed USD Asset Manager accounts holding 22,461 long contracts versus 1,037 short contracts as of 7 July, leaving a net long position of +21,424 contracts. The net position increased by +1,363 contracts versus the previous week, This suggests institutional positioning remained constructive on the dollar despite the mixed price action.

Market Impact: Mixed but still supported by inflation concerns, higher yields, and positive Asset Manager positioning. Next week’s CPI data will be important for whether dollar support continues. 

Bank of Japan - JPY

The yen remained fragile but found some support during the week. USD/JPY stayed near intervention-sensitive levels, with the pair still trading close to historically weak yen territory. However, the yen strengthened modestly after Japanese Finance Minister Satsuki Katayama encouraged large domestic investors, including pension funds, to invest more in Japanese assets.

Markets treated those comments as a form of “soft” or “stealth” support for the yen, because stronger domestic investment could support Japanese bonds. Japanese equities also benefited from the comments, while Japanese government bond yields eased.

The Bank of Japan remains in a difficult position. It raised rates in June from around 0.75% to 1.00%, taking borrowing costs to their highest level in decades. However, the yen is still under pressure because Japanese rates remain much lower than US rates. This keeps carry-trade pressure in place, as investors can still borrow cheaply in yen and move into higher-yielding currencies.

Inflation pressure also remains a concern. Japan’s producer price index rose 7.1% year-on-year in June, above expectations, with higher energy costs and the weak yen continuing to raise input costs. This supports the view that the BoJ may need to remain alert to upside inflation risks.

Asset Manager / Institutional positioning showed a meaningful improvement in yen sentiment. The latest CFTC data showed JPY Asset Manager accounts holding 74,113 long contracts versus 122,766 short contracts as of 7 July, leaving a net short position of -48,653 contracts. The net position improved by +20,040 contracts versus the previous week, as shorts fell sharply. This suggests that institutional accounts were still net short JPY, but the bearish position became less extreme.

Market Impact: Still weak and intervention-sensitive, but supported by reduced Asset Manager short positioning and Japanese official efforts to encourage domestic investment.

Bank of England - GBP

Sterling was one of the stronger major currencies this week. GBP/USD climbed to around a one-month high near $1.345, while sterling also reached a one-year high against the euro.

The move was supported by a weaker dollar, easing UK political uncertainty, and renewed expectations that the Bank of England may need to raise rates again. The Bank of England held Bank Rate at 3.75% in June, with a 7–2 vote. However, Huw Pill’s comments this week were important because he said rates would likely need to rise to keep inflation pressure in check. This reinforced the idea that the BoE may have less room to tolerate above-target inflation than some other central banks. 

Sterling was also helped by signs of greater political clarity following the UK leadership transition. Markets appeared reassured that the next government may remain focused on fiscal discipline, which reduced some of the political risk that had previously weighed on the UK.

Asset Manager / Institutional positioning still shows a bearish sterling sentiment, although it improved over the week. 

The latest CFTC data showed GBP Asset Manager accounts holding 13,996 long contracts versus 157,253 short contracts as of 7 July, leaving a net short position of -143,257 contracts. The net position improved by +13,050 contracts versus the previous week, meaning the institutional short position became less negative. This helps explain why sterling was able to rally strongly: when a currency is heavily shorted, positive news can lead to sharper rebounds as bearish positions are reduced.

Market Impact: Stronger on the week, supported by BoE rate expectations, easing political uncertainty, and reduced short positioning.

European Central Bank - EUR

The euro traded cautiously this week. EUR/USD benefited at times from a softer dollar, but the euro was limited by weaker domestic inflation momentum and a less urgent ECB tightening outlook. 

The ECB inflation data showed headline inflation slowing to 2.8% in June from 3.2% in May, while core inflation eased to 2.4%. This reduced pressure on the ECB to deliver another near-term hike. 

The softer inflation data gives the ECB time to assess the prospect of tightening. Against sterling, the euro underperformed. GBP/EUR moved in sterling’s favour as the pound was supported by BoE rate expectations and better UK political sentiment. 

Against the dollar, the euro was more stable, but its move was driven more by dollar softness than outright euro strength. 

Asset Manager / Institutional positioning remained supportive for the euro, though momentum softened slightly. The latest COT data showed EUR Asset Manager accounts holding 478,070 long contracts versus 224,152 short contracts as of 7 July, leaving a net long position of +253,918 contracts. The net position fell by -1,240 contracts versus the previous week, as short positions increased slightly more than long positions. This suggests institutional accounts remain structurally positive on EUR, but conviction weakened a little.

Market Impact: Supported by still-positive positioning and prior ECB tightening, but capped by softer inflation and weaker relative momentum versus sterling.

Currency Market Summary

The main FX theme this week was divergence between sterling strength, yen fragility, and a mixed dollar. The dollar was not broadly weak across the board, but it lost ground against sterling as UK rate expectations strengthened.

GBP/USD was one of the key movers, rising to around a one-month high near $1.345. GBP/EUR also moved in sterling’s favour, with the pound touching a one-year high against the euro as BoE rate expectations and easing political risk supported the currency.

USD/JPY remained closely watched, trading near historically weak yen levels before yen support improved following Japanese official comments. The pair remains sensitive to intervention risk, US yields, and any signs that Japanese institutional flows may shift back toward domestic concerns.

EUR/USD was steadier, with the euro receiving some support from the softer dollar but remaining capped by softer eurozone inflation and a less urgent ECB outlook.

Overall, the week’s positioning data supports the market narrative: USD Index Asset Manager positioning remained net long and increased slightly, JPY and GBP remained net short but saw meaningful short-position reduction, and EUR remained strongly net long but with slightly weaker momentum.

What to Watch Next Week

Markets will be watching several high-impact economic and geopolitical events next week: 

• US CPI: The most important data point of the week. A softer inflation print could reduce expectations for further Fed tightening, while a stronger reading could support the dollar and push yields higher.

• US PPI: Producer inflation will help show whether cost pressures are still moving through the pipeline.

• US Retail Sales: Important for assessing whether consumer demand remains resilient despite higher prices and borrowing costs.

• Fed Chair Warsh Congressional Testimony: Markets will watch for his first major testimony and any guidance on how the Fed is balancing inflation risk against softer labour data.

• UK GDP and Trade Data: Important for sterling, especially after the recent improvement in UK political sentiment.

• US-Iran / Strait of Hormuz Developments: Any renewed escalation could quickly lift oil prices again, affecting inflation expectations, yields, and FX.

• Eurozone CPI: A softer inflation print could reduce expectations for further ECB tightening, while a stronger reading could support the EUR and push yields higher.

Summary

Market sentiment remained cautious this week as renewed US-Iran tensions pushed oil prices higher and kept inflation risk in focus. 

The dollar was mixed, supported by hawkish Fed commentary but limited by earlier signs of labour market softness. Sterling outperformed as Bank of England rate expectations strengthened and UK political risk eased.

The yen remained fragile but benefited from reduced short positioning and Japanese official efforts to support domestic investment. 

The euro held up but lacked momentum as softer inflation reduced the urgency for further ECB tightening. Looking ahead, next week’s US CPI and PPI releases, Fed Chair Warsh’s testimony, UK GDP figures, ECB CPI and Middle East developments are likely to drive the next major moves in FX and rates.