The British Pound (GBP) rebounded above 1.3300 against the US Dollar (USD), reaching near 1.3325 and snapping a five-day losing streak during Asian trading hours on Friday. This recovery comes as traders anticipate the release of the UK Retail Sales data, expected to show a 0.3% month-on-month decline in June compared to a 1.2% rise in May. The outcome of this data could influence the Bank of England's (BoE) monetary policy stance, with markets currently expecting the BoE to keep its benchmark interest rate steady at 3.75% in the upcoming decision. Analysts at Scotiabank note that policy expectations remain firmly anchored, with no change anticipated at the next Monetary Policy Committee meeting. Financial markets are pricing in one or possibly two quarter-point rate hikes by the end of 2026, little changed from earlier in the week [1].
Meanwhile, the USD/CAD pair saw fresh selling during the Asian session, trading around 1.4070, down 0.10% for the day, as the US Dollar softened. Despite this, the pair remains above the previous day's swing low and is on track for modest gains for the first time in three weeks. The Canadian Dollar's (CAD) performance is influenced by retreating crude oil prices and divergent policy expectations between the Bank of Canada (BoC) and the US Federal Reserve (Fed). Recent soft Canadian inflation data has reinforced expectations that the BoC will keep rates unchanged through 2026, while traders see a higher probability of the Fed raising rates by the end of this year due to energy-driven inflation concerns [2].
Geopolitical tensions in the Middle East are a significant factor underpinning the USD as a safe-haven currency. The US Central Command (CENTCOM) reported its 13th consecutive night of strikes against Iranian targets, and US President Donald Trump warned of a 'major military punishment' for Iran and its Houthi allies. Additionally, the Trump administration is set to impose new tariffs of 10% to 12.5% on 60 of the top trading partners, covering nearly all US imports, which has tempered investor appetite for riskier assets and supported the USD [1][2].
Looking ahead, traders are focused on the release of the flash US PMIs and the upcoming two-day FOMC meeting, both of which are expected to influence the USD and related currency pairs. Developments in the Middle East crisis and oil price dynamics will also play a role in shaping market sentiment and currency movements in the near term [2].
CONCLUSION
Currency markets are currently driven by a combination of central bank policy expectations, key economic data releases, and heightened geopolitical tensions. While the Pound and Canadian Dollar have shown some resilience, the US Dollar remains supported by its safe-haven status amid ongoing uncertainties. Upcoming data and central bank meetings will be critical in determining the next direction for these major currency pairs.