Economic Update

June 29, 2026

US-Iran tensions escalate following Strait of Hormuz incidents

A further incident in which a vessel came under fire from Iranian forces has prompted an additional US military response. The US has carried out further strikes on Iranian military assets, weapons manufacturers and targeting systems, following a second vessel being hit by projectiles.

The Iranian authorities have stated that the initial attack was unauthorized, which, if accurate, would suggest limited operational control.

The USD has strengthened, although broader market reaction has remained.

US payrolls in focus this week

The primary data release this week is the June US non-farm payrolls report (Thursday). Over the past three months, payroll growth has averaged 188k, a marked improvement from the preceding three months, which averaged -4k. These figures remain important alongside unemployment, hiring and layoffs data from other surveys.

Last week’s revision to Q1 GDP showed growth of 2.1% quarter-on-quarter annualized, although this was accompanied by weak consumption.

Consequently, even if payrolls and related indicators deliver stronger-than-expected outcomes, it is not clear this would be sufficient to sustain further USD strength. Risks may remain to the downside, with GBPUSD and EURUSD potentially making modest gains over the course of the week.

Canada’s World Cup progress may offer modest support to activity

Canada’s national team has reached a World Cup knockout victory for the first time, having also progressed beyond the group stage for the first time. Extended celebrations are likely to follow the win against South Africa.

There is a reasonable case that this could provide some support to activity. FIFA’s estimated $3.8bn economic uplift may not fully capture the impact of these historic milestones.

The CAD remains relatively weak against the USD but has moved away from recent multi-month lows. Tuesday’s April GDP data could provide a more constructive signal. A move of around 0.5% lower in USDCAD could be seen this week ahead of Thursday’s US payrolls release.

USDMXN has also retraced some recent gains despite renewed geopolitical tensions. Downside potential appears limited to less than 1%, while risks on the topside could extend to a move above MXN18.

Burnham’s devolution proposals offer limited help UK growth

Andy Burnham remains favorite to succeed Keir Starmer, and both markets and media are assessing his potential policy agenda. At this stage, it remains unclear that these proposals would provide the conditions required for stronger near-term growth.

Over the weekend, Mr Burnham outlined plans centered on increased devolution and the creation of a “Number 10 of the North”. The proposals appear to imply additional administrative layers and spending rather than consolidation. In summary, they include granting greater tax and spending powers to regional mayoral authorities, relocating civil service roles, and offering targeted incentives for youth employment schemes.

How such measures would address elevated government expenditure and higher employment costs, following HM Treasury tax changes, remains unclear. Moreover, the proposals appear unlikely to materially influence consumer spending or business investment in the near term. Markets are therefore unlikely to place significant weight on these announcements for now, instead focusing on Mr Burnham’s forthcoming speech on the economy. Beyond this, the UK data calendar remains relatively light this week.

ECB divergence on inflation risks further EUR weakness

Concerns surrounding the ECB’s policy stance remain central to the outlook for the euro. This week’s provisional June CPI release is expected to show declines in both headline and core inflation; however, risks remain skewed towards a potential upside surprise in core.

Within the Governing Council, views remain clearly divided. Some policymakers are cautious about further rate increases given subdued economic performance, while others remain concerned about the risk of inflation expectations becoming embedded.

This divergence risks leaving policy unchanged while limiting the ECB’s ability to communicate a clear and consistent stance to markets. Such an outcome could undermine confidence and weigh further on the EUR, particularly against a firmer USD. That said, it remains unclear whether the US administration would tolerate sustained USD appreciation in the near term.

Author 

Views expressed in this commentary are those of the author, and may differ from your appointed Moneycorp representative. This commentary does not constitute financial advice. All rates are sourced from Bloomberg and forecasts are taken from Forex Factory.