US Dollar Strength Continues: EUR/USD, GBP/USD and Foreign Exchange Market Outlook

Key Highlight

Dollar strength remains the dominant market theme

The US dollar continues to benefit from strong economic fundamentals, higher interest rates and increasing geopolitical uncertainty. Our strongest conviction remains EURUSD, where the medium-term outlook continues to favour further dollar strength.

Strait of Hormuz tensions support safe haven demand

An overnight strike involving a Qatari LNG vessel in the Strait of Hormuz has increased concerns over global energy supplies. Rising energy costs are expected to place additional pressure on Europe while reinforcing demand for the US dollar as a safe haven currency.

Trade data could drive short term volatility

Attention now turns to the US trade balance release this afternoon. Although the broader outlook remains supportive of the dollar, weaker than expected trade data could trigger a temporary pullback before the longer-term trend resumes.

Market Recap

Investor confidence in the US dollar has reached its highest level in almost a decade, with leveraged funds holding their largest net long dollar positions since 2015. While this highlights strong market conviction, it also increases the risk of sharper moves if economic data disappoints.

Markets have also pushed expectations for the Federal Reserve's next interest rate increase back to December following comments suggesting inflation pressures have eased. Although this has reduced expectations for near term policy tightening, it does not materially change the longer-term outlook, which continues to favour the dollar.

In currency markets yesterday, sterling strengthened against both the Japanese yen and the Swiss franc, while weakening against the Norwegian krone, creating notable cost implications for businesses with exposure to those currencies.

Market Overview

The overnight developments in the Strait of Hormuz have added further support to an already positive outlook for the US dollar. Alongside higher US interest rates, stronger economic performance and a comparatively more hawkish Federal Reserve, geopolitical uncertainty continues to strengthen the dollar's position.

Our highest conviction remains EURUSD, where the medium-term outlook strongly favours further dollar appreciation. The combination of a significant interest rate advantage, stronger US economic data and increased pressure on Europe's energy outlook creates a compelling case for continued euro weakness against the dollar.

The outlook for GBPUSD is less decisive. While the bias still favours a stronger dollar over the medium term, similar interest rate levels between the UK and the US reduce confidence in the direction of travel. With market positioning already heavily weighted towards the dollar, any softer US economic data could result in short term volatility.

For GBPEUR, the outlook remains balanced. Sterling benefits from a meaningful yield advantage over the euro, but market sentiment continues to lean towards euro strength. With important comments from central bank officials and further European Central Bank updates due later this week, businesses with euro exposure should remain prepared for movement in either direction.

Overall, the US dollar continues to have the strongest combination of economic, monetary policy and geopolitical support seen this year. While today's US trade data could influence short term price action, the medium-term outlook remains firmly supportive of continued dollar strength, particularly against the euro.

07th July 2026

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