July 2026 Currency Market Update

Our monthly round-up of the key currency moves affecting UK businesses. July 2026 puts politics front and centre: Keir Starmer's resignation has reshaped the outlook for the pound, while a hawkish Fed, a surprise ECB hike, and shifting signals from Australia and New Zealand round out a busy month across the majors.

The Pound

Politics in Flux, Sterling Holds Its Ground

Keir Starmer announced his resignation on 22 June, following months of political pressure, cabinet walkouts and a bruising run of local election results. Andy Burnham, former Mayor of Greater Manchester, won a by-election on 18 June to secure a seat in Parliament and is now the clear favourite to take over as Labour leader. Labour's National Executive Committee has set the timetable, with nominations opening on 9 July and a new leader expected before the summer recess.

For sterling, the reaction has been telling. Markets generally dislike political uncertainty, but a swift, orderly transition appears to be on the cards, and the pound climbed to its strongest level against the euro in several months. Relative stability, even under a new leader, is clearly preferable to a prolonged internal battle.

On rates, the Bank of England held at 3.75%, with two of its nine members voting for an immediate rise. Inflation has fallen to 2.8%, but the Bank flagged that it expects prices to climb again as Middle East tensions push energy costs higher. With little sign of an imminent move and the economic outlook clouded, sterling has few obvious domestic catalysts to strengthen from here.

The US Dollar

Dollar Firm as the Fed Turns Hawkish

The dollar has traded firmly against the pound this month. The Federal Reserve held rates at its June meeting, but the message was hawkish: US inflation is running at 4.2%, and the committee is split on whether further tightening is needed.

With the Fed leaning towards higher-for-longer, the dollar has kept its bid and the pound has given up around 1.7% over the past month. For UK businesses paying dollar invoices or holding USD receivables, that shift matters, and it strengthens the case for looking at forward cover rather than leaving exposure to chance.

The Euro

ECB Hikes, then Cools the Tightening Talk

The European Central Bank raised its deposit rate by 25 basis points to 2.25% on 11 June, its first hike since 2023. The move reflected mounting inflation pressure, with eurozone prices pushed higher by the conflict in the Middle East.

The euro's initial lift faded quickly. Hints from the Governing Council suggested that further increases are not imminent, and the market has pushed its expectation for the next hike from September out to December. For now, the single currency is caught between a central bank that has started tightening and one that seems in no hurry to continue.

Australian Dollar

The Australian dollar had a strong start to 2026, driven by the Reserve Bank of Australia's determination to get on top of inflation. Three consecutive rate rises took the cash rate to 4.35% by May, and the Aussie rewarded that resolve with a sustained period of strength against the pound.

That run has cooled. The RBA paused in June, leaving rates on hold, and the market read it as a signal that the hiking cycle may be near its ceiling. As a result, the pound has recovered some ground in recent weeks, pulling back from its earlier lows against the Australian dollar.

New Zealand Dollar

New Zealand is the outlier. The RBNZ has held its official cash rate at just 2.25% through both its February and May meetings, leaving the New Zealand dollar well behind its regional peers and most other majors. With rates that low, the Kiwi has stayed under selling pressure and GBP/NZD has remained well supported.

The question is how long that lasts. Inflation in New Zealand is forecast to peak above 4% before year end, and the RBNZ has acknowledged that rate rises are coming sooner than previously expected, with a first move anticipated as soon as September. If the bank follows through with a sustained tightening cycle, the NZD could stage a meaningful recovery in the second half of the year, much as the Aussie did earlier on. For anyone holding pounds with New Zealand dollar requirements, the next few months are worth watching closely.

Adam Jordan

Current Market Rates — 1 July 2026

GBPEUR 1.1614 | High: 1.1621 | Low: 1.1410

GBPUSD 1.3273 | High: 1.3823 | Low: 1.3165

EURUSD 1.1393 | High: 1.2022 | Low: 1.1354

Rates shown are indicative mid-market rates for reference only.

Want to discuss how these moves affect your business? Get in touch with the Pathfinder FX team.