As June begins, global currency markets are being shaped by a tug-of-war between policy decisions, geopolitical developments, and investor sentiment. The British pound surged to multi-year highs, the euro defied rate cut expectations to stay firm, and the U.S. dollar slipped under the weight of renewed trade tensions. With central bank meetings, key economic data, and political headlines on the horizon, the week ahead promises to be anything but quiet.

GBP Climbs to Multi-Year High on Economic Resilience and Defence Spending

The British pound reached a three-year high, trading around $1.355 against the U.S. dollar. The rally was underpinned by renewed confidence in the UK economy, better-than-expected manufacturing and housing data, and a major defence spending plan unveiled by Prime Minister Keir Starmer. These factors boosted sentiment and supported the view that the Bank of England may not need to cut rates aggressively.

Policymaker Catherine Mann is scheduled to speak, and any signals about the BoE’s monetary policy stance could sway the pound. Upcoming housing and consumer sentiment data will also be closely watched for confirmation of economic strength, or signs of a slowdown that might reverse recent gains.

EUR Holds Ground as Investors Bet on Fiscal Support Over Rate Cuts

Despite a dovish European Central Bank, the euro held firm and continued its recent appreciation. A major contributor has been Germany’s commitment to boosting defence and infrastructure spending, which is helping offset the downward pressure from interest rate cuts. Capital outflows from U.S. markets into the eurozone also played a role in supporting the currency.

The ECB meets on June 5 and is expected to deliver a 25 basis point rate cut. However, markets will be focused on forward guidance, particularly hints that the rate-cutting cycle is nearing its end. German fiscal updates and EU-wide inflation figures will round out the euro’s key drivers this week.

USD Under Pressure Amid Trade War Fears and Domestic Fiscal Uncertainty

The dollar slipped to a six-week low as President Trump announced a doubling of tariffs on steel and aluminum from China, reigniting fears of a trade war. In parallel, a new $3.8 trillion tax and spending proposal raised concerns over fiscal stability and long-term inflation. These developments combined to sour investor sentiment and weaken the greenback.

Markets will react to any retaliation from China, with tariffs set to take effect on June 4. On the domestic front, Friday’s U.S. jobs report will be critical, especially if it reshapes expectations about the Fed’s next move. Softer employment data could reinforce the recent downward pressure on the dollar.

With central banks at inflection points, economic data poised to surprise, and trade tensions simmering beneath the surface, currency markets remain delicately balanced. Will the ECB’s cut mark a turning point? Can the pound hold its ground? And how far might the dollar fall? Investors may not have to wait long for answers, but the next move could easily defy expectations.