European FX News Wrap: Markets Remain in Limbo as US-Iran Stalemate Extends
Key Takeaways
- •UK private-sector wage growth slowed to 2.8% in June, its weakest pace since 2020, while unemployment held at 4.9% and vacancies continued to decline.
- •Germany's August ZEW survey showed investor expectations improving across key sectors such as autos, chemicals and engineering, though the reading on current conditions remained deeply negative at -61.1 versus -69.5 expected.
- •Qatar said mediators are waiting for Iran and Oman to reach a bilateral agreement on the Strait of Hormuz, a chokepoint carrying roughly a fifth of globally consumed oil, before returning to broader US-Iran negotiations.
- •ECB chief economist Philip Lane said the euro area's inflation outlook is highly dependent on the US-Iran war, leaving inflation risks skewed to the upside and risk sentiment defensive.
- •US futures nudged lower with tech shares leading declines, the bond market stands out as a key area to watch, and EUR/USD's upside break may have to wait.
- Qatar says an Iran-Oman Hormuz agreement could clear the path for broader US-Iran talks
- ECB policymaker Lane says the inflation outlook is highly dependent on the US-Iran war
- Germany August ZEW survey current conditions -61.1 vs -69.5 expected
- The bond market is one of the key spots to watch at the moment
- US futures nudge lower on the day, tech shares lead declines
- UK labour market shows further signs of cooling in June
- EUR/USD upside break may have to wait
It has been a slow session with very limited action across the markets. The lack of notable data and news releases, coupled with the prolonged stalemate between the United States and Iran, has been a major contributor to the subdued trading conditions.
The UK labour market continued to lose momentum in June. Employment indicators pointed to weaker hiring conditions and a gradual cooling in wage growth, with private-sector wage growth slowing to 2.8% — its weakest pace since 2020 — while unemployment held at 4.9%. Vacancies continued to decline, reinforcing the picture of a softer labour market. Pay growth is one of the indicators the Bank of England tracks most closely for signals of domestic inflation persistence, so the data reinforces the neutral stance, as policymakers balance persistent inflation risks against a soft labour market.
Germany's August ZEW survey showed investor sentiment improving further, with expectations becoming more optimistic across key sectors including autos, chemicals and engineering. The ZEW survey polls financial market experts on their six-month economic outlook, making it a widely watched forward-looking gauge for the euro area's largest economy. However, the assessment of current economic conditions remained deeply negative at -61.1, although this was better than the -69.5 expected.
On the geopolitical front, Qatar said mediators are waiting for Iran and Oman to reach a bilateral agreement over the Strait of Hormuz before returning to broader US-Iran negotiations. The strait is one of the world's most important oil chokepoints, with roughly a fifth of globally consumed oil passing through it, and ECB chief economist Philip Lane said the euro area's inflation outlook is highly dependent on the US-Iran war. For markets, what matters is the prolonged US-Iran stalemate, which keeps inflation risks skewed to the upside and risk sentiment on the defensive.
With central bank policy hinging on how these tensions evolve, the bond market is one of the key spots to watch at the moment, while US futures nudged lower on the day with tech shares leading declines. In currencies, EUR/USD's upside break may have to wait.
