Weekly Market Briefing - 3rd July 2026

Markets were shaped this week by softer US labour market data, shifting rate expectations, geopolitical developments, and renewed currency volatility. 

The US Dollar weakened into the end of the week after June payrolls came in below expectations, reducing market confidence that the Federal Reserve will need to raise rates as soon as July. 

Sterling benefited from the softer Dollar and easing UK political risk, while the Yen moved away from its weakest levels in decades but remained intervention-sensitive.

In Europe, softer inflation data reduced some of the pressure on the European Central Bank to tighten aggressively, although policymakers continued to stress that energy-related inflation risks have not fully disappeared

Data/Figures

Federal Reserve - USD

The US Dollar weakened into Friday after softer labour market data reduced expectations for a near-term Federal Reserve rate hike. The Fed held rates at its June meeting, leaving the target range at 3.50%–3.75%, but June’s weaker labour data changed how markets interpreted the next policy move.

US non-farm payrolls rose by only 57,000 in June, below expectations, while previous months were revised lower. The unemployment rate fell to 4.2%, but the decline was partly due to lower labour force participation, which made the headline improvement less convincing. This reduced the argument for an immediate July rate hike and encouraged markets to scale back near-term Fed tightening expectations.

The Dollar index was down around 0.5% on the week, its largest weekly fall since April. This marked a clear shift from the previous week, when the Dollar had been supported by hawkish Fed expectations and resilient US data.

Market Impact: Softer overall, as weaker jobs data reduced near-term Fed hike expectations and encouraged profit-taking after the previous Dollar strength. 

Bank of Japan - JPY

The Yen recovered from its weakest levels of the week but remained fragile. The Bank of Japan had raised rates in June from around 0.75% to around 1.00%, taking Japanese rates to their highest level in decades. However, the rate increase has not been enough to fully support the Yen because Japanese rates remain significantly below US rates.

USD/JPY briefly reached levels not seen since the mid-1980s earlier in the week, increasing speculation that Japanese authorities could intervene to support the currency. The pair later moved back below 161 after the softer US jobs report weakened the Dollar.

The Yen remains exposed because the US-Japan rate gap is still wide. Even after the BoJ’s rate hike, carry-trade pressure remains in place, meaning investors can still borrow cheaply in Yen and hold higher-yielding currencies elsewhere. This keeps the Yen vulnerable unless the US rate outlook softens further or Japan takes a stronger intervention stance.

Positioning continues to show heavy bearish pressure on the Yen. Speculative accounts remain net short JPY, meaning traders are still broadly positioned for Yen weakness. However, the softer US jobs report reduced some of the immediate pressure by lowering US yield support for USD/JPY.

Market Impact: Slightly relieved by the weaker Dollar, but still weak overall due to rate differentials, carry-trade pressure, and intervention risk. 

Bank of England - GBP

Sterling performed strongly this week, helped by broad Dollar weakness and easing domestic political risk. The Bank of England held Bank Rate at 3.75%, but markets still see a greater chance of a BoE rate hike than a rate cut by year-end. This supported the Pound, particularly as the Dollar weakened after the softer US jobs report.

GBP/USD rose by around 1.2% over the week, marking its strongest weekly gain against the Dollar in around 12 weeks. Against the euro, Sterling also performed well, touching its strongest level in around a year before easing slightly.

Markets were reassured by signs that the UK leadership transition may remain committed to fiscal discipline, reducing some of the political risk that had weighed on the Pound. This was important because UK assets had previously been sensitive to concerns around future spending and taxation.

The Bank of England’s position remains complicated. Inflation is still above target, which keeps the possibility of further tightening alive, but growth signals are mixed and policymakers will not want to overtighten into a weakening economy. Sterling therefore benefited from both domestic resilience and the softer US Dollar, rather than from a purely strong UK sentiment.

Positioning remains an important background factor. Sterling had previously carried a heavy speculative short position, so the combination of softer USD, easing political risk, and still-hawkish BoE pricing created conditions for a sharper rebound.

Market Impact: Stronger on the week, supported by softer USD, easing UK political risk, and continued BoE inflation caution.

European Central Bank - EUR

The euro recovered modestly against the Dollar as USD weakened, although softer eurozone inflation limited the extent of the move. The European Central Bank had raised rates in June, taking the deposit rate to 2.25%, the main refinancing rate to 2.40%, and the marginal lending facility to 2.65%. However, this week’s softer inflation data reduced the urgency for further near-term tightening.

Eurozone headline inflation slowed to 2.8% in June from 3.2% in May, while core inflation eased to 2.4%. This gave markets more reason to believe that the ECB can be patient after its June hike, particularly as lower energy prices reduced the immediate inflation.

EUR/USD rose as the Dollar weakened after the US jobs report, but the euro’s own domestic market remains mixed. Lower inflation is helpful for consumers, but it also reduces the urgency of further ECB rate support for the currency. Eurozone growth also remains fragile, meaning the euro’s recovery was more about Dollar weakness than outright euro strength.

Positioning still suggests that the euro has some support, although momentum has softened. Speculative accounts remain net long EUR, but the move has become less convincing as lower inflation reduces expectations for aggressive ECB tightening.

Market Impact: Supported by weaker USD, but capped by softer inflation and a less urgent ECB tightening outlook.

Currency Market Summary

The main currency move this week was broad Dollar weakness after softer US labour market data reduced Fed hike expectations. The Dollar index fell around 0.5% on the week, marking its largest weekly decline since April. 

USD/JPY was one of the most closely watched pairs. It reached intervention-sensitive levels earlier in the week before retreating back below 161 after the weaker US jobs data. This reflected both Yen fragility and the importance of US rate expectations for the pair. 

EUR/USD recovered modestly as the Dollar weakened, although softer eurozone inflation limited the euro’s momentum. The pair’s move was therefore driven more by Dollar weakness than by a major improvement in the eurozone outlook. 

GBP/USD was one of the stronger movers, rising around 1.2% on the week as Sterling benefited from softer USD, easing UK political risk, and continued BoE inflation caution. GBP/EUR also performed well, with Sterling touching its strongest level against the euro in around a year before easing slightly. 

Overall, the FX outlook shifted from Dollar strength to Dollar correction. Softer US jobs data reduced Fed hike expectations, while GBP benefited most from the softer Dollar and improved domestic sentiment. JPY remains vulnerable despite some relief, and EUR remains caught between a weaker Dollar and softer eurozone inflation.

What to Watch Next Week

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

• FOMC Minutes: The minutes from the Fed’s June meeting will be closely watched for how divided policymakers are after the recent weaker jobs data.

• US ISM Services PMI: Important for assessing whether the US services sector remains resilient despite slower hiring.

• US Trade Balance: Markets will watch whether the US trade deficit widens, particularly after recent currency and energy-price moves.

• US Jobless Claims: Weekly claims will be important after the weaker payrolls report, as markets look for signs of whether labour market softness is broadening.

• ECB Monetary Policy Accounts: These will give more detail on the ECB’s June rate hike and how policymakers are thinking about inflation after the latest softer CPI data.

• Japan Household Spending / Producer Prices / Current Account: Japanese data will be watched closely given Yen weakness and the BoJ’s recent rate hike.

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

• OPEC Meeting / Oil Supply Updates: Energy markets will remain sensitive to output decisions, improved trade routes, and any disruption around the Strait of Hormuz.

Summary

Market sentiment improved slightly into the end of the week as softer US labour market data reduced expectations for an imminent Fed hike and pulled the Dollar lower. 

Inflation is still above target in major economies, energy prices remain sensitive to geopolitical developments, and central banks are still cautious of geopolitical developments.

The US Dollar softened as Fed hike expectations eased, while Sterling strengthened on reduced political risk and continued BoE inflation concern. 

The Yen recovered from extreme lows but remains vulnerable due to wide rate differentials and carry-trade pressure. 

The euro benefited from Dollar weakness, but softer eurozone inflation reduced the urgency for further ECB tightening. 

Looking ahead, next week’s FOMC minutes, US services data, ECB accounts, Japanese data, and Middle East energy developments are likely to drive the next major market moves.