Every quarter, our FX analyst Joe Tuckey reviews what moved the major currency pairs. He also explores the things to consider in the months ahead. Our latest quarterly briefing covered a lot of ground.
Watch the recording below to get the full picture in Joe’s engaging style or read on to get the top-level stories on:
- Oil
- The new Fed chair
- Changes at the top in UK politics
- AI – the left-field risk building in equity markets.
Below, we’ve pulled out the detail of Joe’s briefing and unpack the questions that will shape GBP/USD, EUR/USD and GBP/EUR through Q3.
Oil: from an inflation scare to a calmer market
At the end of Q1, oil was the story. We covered this in our last quarterly briefing. Brent was trading around $120 a barrel on the back of the US and Iran conflict, and the market was pricing central banks to hike multiple times across 2026, to hold inflation down.
Three months on, that pressure has eased. Oil is back near $72 a barrel, and as Joe put it, Brent “has basically unwound the whole of the move.” A round trip of roughly $70, and markets have grown noticeably more desensitised to each new headline.
Why does this matter for currencies? FX doesn’t trade geopolitics directly. It trades the inflation and interest rate expectations that sit behind them.
When oil spikes, energy importers like the UK and the euro area face higher headline inflation. This pushes central banks to stay tighter for longer. When oil falls back, that pressure comes off, and the case for aggressive hikes softens.
There’s a regional split worth remembering. The US is the world’s largest oil producer, so oil swings hit it very differently to the UK and Europe, which are both net energy importers. For sterling and the euro, lower oil is the more meaningful disinflationary signal.
Joe’s caution is this: The 60-day ceasefire is fragile, with fresh skirmishes already in the mix. With equities near highs and oil back at pre-conflict levels, he sees a degree of complacency priced in, and asymmetric risk to the upside in oil if tensions flare again.
A new Fed chair, and the end of forward guidance
The change of Fed leadership was one of the bigger developments of the quarter, and not for the reasons some expected.
The market had braced for a more dovish, politically pliable chair. Joe’s read was the opposite. The first meeting under Kevin Warsh’s leadership landed as a hawkish surprise, with a clear commitment to getting inflation back to 2% while the US labour market holds up. The dollar strengthened on the back of it.
The more structural shift was the move away from forward guidance. Under the previous regime, the Fed used its statements and projections to steer expectations well ahead of time. The new approach is to be, in Joe’s words, “led by the data.”
For traders and treasurers, that changes the mechanics. With less handholding from the Fed, individual inflation and employment releases carry more weight, and volatility tends to cluster around those prints rather than around the meetings themselves.
Joe did flag one risk for anyone leaning bullish on the dollar. The market is pricing roughly 30 to 40 basis points of hikes between now and year end. If disinflation arrives faster than expected and those hikes don’t materialise, that pricing unwinds, and the dollar would typically drift lower.
UK politics and the gilt market
For sterling, UK political credibility rarely trades as noise. It travels through the gilt market.
When the prospect of Andy Burnham succeeding Keir Starmer first surfaced, sterling softened.
Burnham had been seen as the less market-friendly option, partly on past comments about the government not being “in hock” to bond markets. But sterling has since proved resilient, and that early weakness has largely unwound.
Joe’s explanation comes back to gilt confidence. Burnham has moved early to reassure the bond market. He’s brought in experienced advisers including Andy Haldane, a former chief economist at the Bank of England, and Richard Hughes, the former chairman of the Office for Budget Responsibility. The signal is institutional competence, and a clear effort to avoid a Liz Truss-style shock
Sitting behind all of this is fiscal credibility. Rachel Reeves has kept markets calm through her fiscal rules and headroom. Day-to-day spending, not new borrowing, will fund a plan to cut debt-to-GDP over three to five years.
The open question for Q3 is who takes over as chancellor, and whether they hold that same line. The bond market is, as Joe described it, hungry for detail, with something in the region of £300 billion of issuance to absorb over the next few years. He also pointed to the autumn budget as a likely driver of sterling volatility, much as it was late last year.
Central banks on pause, watching second-round inflation
With oil’s disinflationary pull doing some of the work, the major central banks have moved into a wait-and-see stance. Joe summed up the mood simply: they’re “all playing for time.”
The thing they’re watching is second-round inflation, whether wage growth and pricing behaviour keep inflation sticky even as energy costs fall.
- ECB: Joe doesn’t expect a move in July, with the potential for a 25-basis point step in September. The euro’s bigger problem is a stagflation mix, with inflation near target but growth looking weak.
- Bank of England: likely on hold for the next few meetings, with any shift towards cuts more plausible into Q1 next year, depending on the evidence. Recent votes have split 7-2, a reminder that a couple of hawks remain focused on second-round effects.
The left-field risk: AI concentration in equities
Not every risk is macro. Joe used part of the session to flag a positioning risk that sits on the periphery of the FX conversation but could spill into it.
The concern is concentration. A large share of the S&P 500 now sits in a handful of hyperscaler stocks, powered by heavy capex and strong retail momentum. Enough seasoned money managers are asking whether this has the hallmarks of the early-2000s internet bubble that it’s worth watching.
The FX link is beta. Overlay GBP/USD on the S&P over a long enough window and the relationship is tight.
In a sharp equity drawdown, investors tend to seek safety. That’s with the dollar and also the Swiss franc. Sterling, sensitive to risk-off conditions, tends to underperform.
Joe framed a 10 to 15% correction in the NASDAQ or S&P as the kind of move that could trigger that dynamic. For now, the market is sanguine and indices are near highs, so this stays firmly in the tail-risk column, not the base case.
What we’re watching in currency markets as we head into Q3
Pulling it together, Q3 could be a quieter quarter than Q2, though not a risk-free one. These are the threads Joe says will connect the currency moves in the weeks ahead:
1. Oil
Does it stay benign, or does the ceasefire break down and reintroduce inflation fear?
2. Fed data sensitivity
Do CPI and labour prints push dollar pricing towards more hikes, or fewer?
3. UK fiscal credibility
does the next chancellor keep the fiscal rules intact and gilt issuance manageable?
4. Second-round inflation
are wages and core CPI confirming the disinflation story?
5. Equity tail risk
if AI concentration unwinds, how does sterling behave against the dollar?
Follow the markets with Joe every week
The quarterly briefing is the long view. For the week-to-week detail, Joe publishes a market report every Monday morning, tracking the price action and the fundamentals moving GBP/USD, EUR/USD and GBP/EUR.
Subscribe to the weekly reports to get it in your inbox, and watch the full Q2 briefing above to hear Joe’s complete breakdown.
The contents of this article and video do not constitute financial advice and are provided for general information purposes only. While the content is based on information believed to be accurate at the time of publication, no guarantee is provided.