IC Markets – Europe Fundamental Forecast | 03 July 2026
What happened in the Asia session?
The aftermath of the weaker-than-expected U.S. June employment report released overnight, alongside stronger regional business activity data. The softer U.S. payroll figures reinforced expectations that the Federal Reserve is less likely to raise interest rates in the near term, weakening the U.S. dollar and supporting risk-sensitive assets. At the same time, final June Purchasing Managers’ Index (PMI) data indicated improving business activity across parts of Asia, with Japan’s services sector returning to stronger expansion and China’s export demand reaching its strongest pace in roughly 20 months, boosting confidence in the regional growth outlook.
What does it mean for the Europe & US sessions?
Traders are primarily focused on the aftermath of the U.S. June employment data, which came in weaker than expected and weighed on the U.S. dollar while reinforcing expectations that the Federal Reserve may have greater scope to ease policy later this year. European markets are digesting softer euro area inflation figures released earlier this week, which have strengthened the case for the European Central Bank to pause after its recent rate hike, leaving the euro sensitive to any further policy commentary.
The Dollar Index (DXY)
Key news events today
No major news event
What can we expect from DXY today?
The U.S. dollar is under broad selling pressure following a significantly weaker-than-expected June U.S. employment report that reinforced expectations the Federal Reserve will keep interest rates unchanged in the near term. June nonfarm payrolls increased by just 57,000 jobs, well below market expectations, while previous months’ figures were revised lower, signaling a cooling labor market. As a result, traders sharply reduced expectations for a September Fed rate hike, causing the U.S. Dollar Index (DXY) to fall below 101 and head for its largest weekly decline since April.
Central Bank Notes:
- The Federal Open Market Committee (FOMC) left the federal funds rate unchanged at 3.50%–3.75% at its June 16–17, 2026, meeting, marking another pause in the policy cycle. Under new Fed Chair Kevin Warsh, policymakers signaled a more cautious and hawkish stance as inflation remains above target despite moderating energy prices.
- The Committee remains committed to achieving maximum employment and returning inflation to its 2% objective. Labor market conditions have remained relatively stable, with job gains continuing at a moderate pace and the unemployment rate projected to remain near 4.4% through 2026.
- Inflation continues to be the primary concern for policymakers. Headline inflation remains elevated, supported by earlier energy-related price pressures and persistent services inflation. The June projections showed higher inflation forecasts than previously expected, leading several officials to favor keeping policy restrictive for longer.
- Economic activity continues to expand at a moderate pace. Productivity growth, capital investment, and AI-related spending remain supportive of growth, while consumer spending and housing activity show signs of slowing compared with late 2025 and early 2026.
- The June 2026 Summary of Economic Projections (SEP) revealed a more divided Committee. Nine officials projected at least one rate hike during 2026, while others expected rates to remain unchanged or eventually decline. The median outlook shifted toward a higher-for-longer policy path compared with earlier projections.
- The Committee emphasized a data-dependent approach and noted that future decisions will depend on incoming inflation, employment, and economic growth data. Officials acknowledged that geopolitical developments and energy markets remain important upside risks to inflation.
- The FOMC continues its balance sheet normalization program, maintaining Treasury runoff caps at $5 billion per month and agency mortgage-backed securities (MBS) runoff caps at $35 billion per month, while ensuring ample reserves remain in the banking system.
- The next meeting is scheduled for 28 to 29 July 2026.
Next 24 Hours Bias
Weak Bullish
Gold (XAU)
Key news events today
No major news event
What can we expect from Gold today?
Gold prices moved sharply higher with spot gold climbing above $4,170 per ounce, putting the metal on track for its first weekly gain in five weeks. The rally was driven by a weaker-than-expected U.S. non-farm payrolls report, which reinforced expectations that the U.S. Federal Reserve may be less aggressive with future interest-rate increases. The softer labor data pressured the U.S. dollar and reduced Treasury yields, boosting demand for non-yielding assets such as gold. Additional support came from renewed central bank gold purchases and continued investor demand for safe-haven assets amid lingering global economic uncertainty.
Next 24 Hours Bias
Weak Bullish
The Euro (EUR)
Key news events today
ECB President Lagarde Speaks (8:00 am GMT)
What can we expect from EUR today?
The euro is trading cautiously at the end of the week as markets continue to assess the European Central Bank’s (ECB) policy outlook against a backdrop of moderating inflation and resilient economic activity. ECB President Christine Lagarde has defended the Bank’s June interest-rate increase, arguing that underlying inflation remains too persistent to declare victory despite easing energy prices and lower headline inflation. Fresh eurozone data showing inflation slowed to 2.8% in June, with core inflation also easing, has strengthened expectations that the ECB is likely to keep rates unchanged at its July meeting while monitoring incoming economic data before considering any further tightening later in the year.
Central Bank Notes:
- The Governing Council is expected to maintain the three key rates unchanged at their June levels into July, with the main refinancing rate around 2.15%, the marginal lending facility at 2.40%, and the deposit facility at 2.00%. Policy remains on a meeting‑by‑meeting, data‑dependent footing.
- Real GDP growth is expected to be modest: around 0.9% for 2026, 1.3% for 2027, and 1.4% for 2028. Quarterly momentum implies roughly 0.2–0.3% q/q growth in Q2 2026, consistent with resilience seen late‑2025.
- Balance‑sheet normalization continues smoothly. APP and PEPP wind‑downs are effectively completed; the Eurosystem is allowing remaining longer‑dated holdings to run off. No material liquidity shortages are expected; the Governing Council will monitor transmission and market functioning closely.
- Upside risks: stronger‑than‑expected services inflation persistence, renewed energy or commodity price shocks, and tighter global financial conditions that transmit unevenly.
- The ECB is likely to keep policy rates on hold while emphasizing data dependence: future moves will be guided by incoming HICP prints, wage dynamics, and indicators of monetary transmission (credit, deposit flows, and market functioning).
- With rates expected to be on hold and inflation slightly above target for 2026, the EUR may trade with two‑way volatility; upside for the EUR if euro‑area data surprise to the upside or if US data weaken relative to the euro‑area, but limited unilateral appreciation given symmetric policy risks.
- Curve pricing should reflect a prolonged period of unchanged rates with modest probability of hikes if upside inflation surprises continue; front-end stays anchored, while longer‑dated yields respond to inflation‑expectation movements and global risk sentiment.
The next meeting is on 22 to 23 July 2026
Next 24 Hours Bias
Weak bearish
The Swiss Franc (CHF)
Key news events today
No major news event
What can we expect from CHF today?
The Swiss franc (CHF) is trading with a slightly firmer tone supported by stable domestic fundamentals and renewed safe-haven demand ahead of the closely watched U.S. non-farm payrolls report. Switzerland’s latest inflation data showed consumer prices easing modestly to 0.5% year-over-year in June, remaining comfortably within the Swiss National Bank’s (SNB) 0–2% target range. This has reinforced expectations that the SNB will keep its policy rate at 0% for the foreseeable future while maintaining its willingness to intervene in foreign exchange markets if excessive franc strength threatens price stability.
Central Bank Notes:
- At its monetary policy assessment on 18 June 2026, the Swiss National Bank left the SNB policy rate unchanged at 0.00%, in line with market expectations. Policymakers maintained that the current policy setting remains appropriate given low inflation and ongoing global economic uncertainty.
- Inflation remains exceptionally subdued in Switzerland. Recent data show consumer price growth staying comfortably within the SNB’s price stability range, with headline inflation around 0.6% year-on-year in May 2026, while underlying inflation pressures remain limited despite higher global energy prices.
- The SNB continues to view medium-term inflation pressures as largely unchanged. While energy prices linked to Middle East tensions have temporarily lifted near-term inflation expectations, the stronger Swiss franc has helped offset imported inflation, supporting the central bank’s decision to maintain rates at current levels.
- External risks remain elevated. Policymakers highlighted ongoing geopolitical tensions, trade uncertainties, and slower global growth prospects, particularly in key export markets such as the Eurozone and the United States. These factors continue to warrant a cautious policy approach.
- Swiss economic activity remains resilient but modest. GDP growth is expected to remain around 1–1.5% in 2026, supported by domestic demand, although manufacturing and export-oriented sectors continue to face challenges from a strong franc and softer foreign demand.
- The SNB reiterated its readiness to act if necessary. The Governing Board emphasized that it remains willing to intervene in foreign exchange markets to counter excessive Swiss franc appreciation and stands prepared to adjust policy should inflation or economic conditions deviate materially from expectations.
The next meeting is on 24 September 2026.
Next 24 Hours Bias
Strong Bullish
The Pound (GBP)
Key news events today
BOE Gov Bailey Speaks (3:00 pm GMT)
What can we expect from GBP today?
The British pound (GBP) is ending the week on a firmer footing after rallying against both the U.S. dollar and the euro. Sterling climbed to a one-year high versus the euro and reached a two-week high against the dollar as weaker U.S. economic data and broad U.S. dollar softness boosted demand for the currency. Support has also come from signs that the UK economy remains relatively resilient, even as households continue to rely on savings to sustain spending.
Central Bank Notes:
- The Bank of England’s Monetary Policy Committee (MPC) met on 17–18 June 2026 and voted 7–2 to maintain the Bank Rate at 3.75%. Two members, Megan Greene and Chief Economist Huw Pill, voted for a 25-basis-point increase to 4.00%, citing concerns about inflation expectations and the risk of persistent price pressures. The majority favored keeping policy unchanged while assessing the evolving impact of recent energy-market developments.
- Quantitative tightening (QT) continues as planned, with the Bank maintaining its balance-sheet reduction strategy through gilt runoff and sales. The MPC considers QT an important part of policy normalization while preserving sufficient liquidity in financial markets.
- Inflation remains above target despite some easing in energy prices. The Bank expects CPI inflation to remain around or above 3% during the second half of 2026, compared with the 2% target. While recent declines in oil and gas prices have reduced the near-term inflation outlook, policymakers remain concerned about potential second-round effects through wages and services inflation.
- UK economic growth remains subdued. The MPC noted signs of weakening demand, falling vacancies, and a softer labor market, although recent wage growth data came in slightly stronger than expected. The Committee expects economic activity to remain modest as higher borrowing costs and uncertainty continue to weigh on business investment and consumer spending.
- Global risks remain elevated, particularly due to developments in the Middle East and their potential effects on energy markets, trade flows, and financial conditions. Although tensions have eased somewhat following diplomatic progress, policymakers continue to monitor commodity-price volatility and its implications for UK inflation.
- Inflation risks remain tilted to the upside. The MPC highlighted concerns that higher inflation expectations, resilient wage growth, and renewed energy-price shocks could require a more restrictive policy stance. However, downside risks from weaker growth and increasing economic slack provide an offsetting influence.
- The MPC continues to emphasize a data-dependent and restrictive policy stance, with no commitment to either rate cuts or hikes in the near term. Governor Andrew Bailey stated that policymakers will remain vigilant and stand ready to respond if inflation proves more persistent than expected. The presence of two votes for a rate increase demonstrates that the Committee remains alert to upside inflation risks.
- The next meeting is on 30 July 2026.
Next 24 Hours Bias
Weak Bullish
The Canadian Dollar (CAD)
Key news events today
No major news event
What can we expect from CAD today?
The Canadian dollar (CAD) is trading with mixed momentum as markets balance a weaker U.S. dollar against declining crude oil prices. The loonie initially strengthened after a much weaker-than-expected U.S. June non-farm payrolls report fueled expectations that the U.S. Federal Reserve may take a less aggressive policy stance, reducing demand for the U.S. dollar. However, gains have been limited by falling oil prices, an important headwind for Canada’s commodity-linked currency, as easing geopolitical tensions in the Middle East and the reopening of shipping through the Strait of Hormuz have weighed on crude prices.
Central Bank Notes:
- At its 10 June 2026 meeting, the Governing Council maintained the overnight rate target at 2.25%, continuing the policy pause begun earlier in the year. The decision matched market expectations and reflected the Committee’s assessment that the current stance remains appropriately restrictive to secure 2% inflation over the policy horizon.
- The Bank noted persistent global headwinds: geopolitical tensions in the Middle East and renewed U.S. trade friction continue to weigh on sentiment and supply chains. These risks are asymmetric and could slow foreign demand or push commodity price volatility higher.
- Real GDP growth is estimated to have continued into Q2 at roughly a 2.0–2.3% annualized pace, broadly consistent with the Bank’s April projection of sustained momentum. Strength remained concentrated in resource shipments and exports, supported by robust global energy demand, while business investment showed only tentative improvement.
- The labour market remains tight but is showing early signs of rebalancing: employment growth continued, and the unemployment rate stayed near recent lows, but wage growth has moderated from its peak. Participation edged up modestly in some regions, consistent with slower wage pressure ahead.
- Headline CPI remained close to 2.0% year-over-year in April–May prints, within the inflation target band. Core indicators—CPI-trim, CPI-median, and a trimmed mean—tracked around 2.3–2.6%, showing modest further easing compared with earlier in the year.
- Manufacturing PMI remained in expansionary territory into May, supported by export orders and healthy energy-sector activity. Firms reported steady demand for intermediate goods, though capex intentions remain cautious.
- Credit growth continued at a moderate pace. Bank lending spreads and deposit dynamics showed limited pass-through from global tightening episodes. Mortgage rates remain somewhat elevated but stable, underpinning the observed moderation in housing activity.
- The next meeting is on 16 July 2026.
Next 24 Hours Bias
Weak Bearish
Oil
Key news events today
No major news event
What can we expect from Oil today?
Oil prices are trading cautiously higher today after several sessions of weakness, but the broader market remains under pressure as traders continue to unwind the geopolitical risk premium that built up during the recent Middle East conflict. Brent crude is trading around $72 per barrel, while WTI is near $69 per barrel, with sentiment supported by continued progress in U.S.-Iran diplomatic talks and the reopening of shipping through the Strait of Hormuz. Gulf producers, including Kuwait, have rapidly restored production and exports, easing concerns over supply disruptions and reinforcing expectations of ample global crude availability.
Next 24 Hours Bias
Weak Bearish
