Dollar Volatility Rises Amid Gulf Tensions

The euro has had a poor start to July, pressured by dovish signals from the European Central Bank (ECB) and weak Eurozone inflation. The single currency remains under pressure due to concerns over European energy security. Investors will be keeping an eye on upcoming Eurozone data, particularly inflation figures, as they seek to gauge the odds of the ECB delivering up to two interest rate hikes by the end of the year.

The pound had a positive start in July, with investors pricing out recent UK political risk premium following Keir Starmer's resignation. However, the honeymoon period was short-lived, and Sterling sentiment remained broadly positive but curbed demand for the pound in the latter half of the month due to rising UK borrowing costs and mixed economic data.

The US dollar has traded erratically in recent weeks, influenced by hostilities in the Middle East and mixed US economic indicators. A key focus for USD investors in August will be the Federal Reserve's annual Jackson Hole symposium, where the central bank may offer insight into its monetary policy through the second half of 2026.