A pivotal week for sterling as Burnham steps up
Sterling enters a pivotal week under pressure as political shifts, including Andy Burnham’s leadership and cabinet choices, drive GBP moves, while key UK data and global oil dynamics shape broader FX sentiment.
USD
The dollar ended a choppy week roughly where it began. Granted, Tuesday's much-softer-than-expected June CPI drove a dovish repricing that dragged the DXY to one-month lows before it steadied around 100.8. But an escalating Middle East conflict capped downside: with US forces striking Iran nightly and the naval blockade throttling the Strait of Hormuz, Brent settled now trades near $90, after rising more than 4% on Friday alone. The week ahead is light domestically, and the Fed is in blackout before its July 29th decision, leaving Friday's flash PMIs and Wednesday's tech earnings as the key risks. We still see dollar risks skewed lower as hawkish Fed bets unwind, but remain cautious on chasing weakness while the war keeps a bid under both oil and the buck.
EUR
The euro drifted on Friday, unsurprisingly given a lack of catalysts. For now, external forces dominate, though we think these remain unhelpful on balance. The bloc's terms of trade are deteriorating as Brent pushes towards $90 on the back of the Hormuz blockade and nightly US strikes on Iran, while EU gas storage sits half full ahead of the heating season. Thursday's ECB decision is the week's centrepiece, albeit with the deposit rate widely expected to stay at 2.25%, attention predominantly falls on President Lagarde's reading of the oil shock. We think this meeting comes too early for another move, but a sustained closure of the Strait of Hormuz would keep a September hike firmly on the table. Friday's flash PMIs are the other focus.
GBP
Sterling heads into a pivotal domestic week on the back foot, having faded to just below 1.35 against the dollar at the back end of last week. The recent moves have been political: cable and the GBPEUR initially jumped to a one-year high midweek on reports that Shabana Mahmood, rather than Ed Miliband, would take the Treasury, a choice markets read as fiscally orthodox, before Andy Burnham refocused minds on a tax-raising autumn Budget by declining to rule out higher taxes. Burnham was confirmed as Labour leader on Friday and takes office as Prime Minister today, making his cabinet appointments the immediate catalyst. Confirmation of Mahmood as Chancellor, alongside a broadly market-friendly line-up, would likely support the pound; a tilt to the left would do the opposite. The data then builds: Tuesday's labour market report, Wednesday's June CPI, and Friday's flash PMIs and retail sales should offer plenty to keep traders busy. We retain a modest downside bias into the handover, but a reassuring cabinet today would soften the blow.
CAD
The loonie starts the week consolidating, with USDCAD holding just above 1.40 after grinding lower through the middle of last week. Wednesday's Bank of Canada decision still frames trading: a sixth consecutive hold at 2.25% matched our call, paired with a mildly constructive tone as the Bank judged uncertainties to have eased, even as fresh forecasts cut 2026 growth to 0.7%, and Governor Macklem signalled he would look through oil-driven swings in headline inflation. Crude is doing the near-term work, with WTI in the mid $80s as the reinstated US naval blockade outside the Strait of Hormuz and nightly strikes on Iran throttle Gulf supply, though lingering USMCA uncertainty, after Washington declined to renew the deal in its current form, offsets some of that support. The domestic highlight lands today, seeing June CPI at 13:30 BST, which should cool following May's war-inflated 3.2% headline. With markets pricing only around 20bps of BoC tightening this year, we still think steady policy is the likelier path, leaving rate differentials to close in favour of USDCAD downside over time.