The US dollar (USD) is seeing a very flat and soft opening of the US session this Wednesday after a very lackluster European trading session. As such, it should come as no surprise because US Federal Reserve Chairman Jerome Powell’s semi-annual testimony to Congress on Tuesday did not carry any special comments or new angles that the markets had not yet taken into account. It could have been a tape recorder replaying the recent interest rate decision From the Fed, with the bottom line the same: Powell wants to keep interest rates steady longer because he is afraid to start cutting rates too soon.
On the economic front, no real data has emerged, although it is side events that will attract all the attention. With the 10-year bond auction, it’s the perfect moment to see how the record duration will behave and how appetite for US debt is now in the bond market. Add to that at least three Fed members, along with Fed Chairman Powell, who will head to Congress again on Wednesday, and it looks like today will be a somewhat Fed-driven day.
The US dollar index (DXY) is once again looking for direction without substantial movements, even after Fed Chairman Powell’s comments on Tuesday. Fatigue creeps into the dollar, as markets look for any different message Powell might send. The lingering message that interest rates must remain flat, that they are data-driven, and that lowering borrowing costs too early could backfire is starting to push investors out of the dollar.
The impact of US data on GBPUSD and political stability in the United Kingdom
Ahead of Thursday’s release of the US Consumer Price Index, the US dollar has remained steady so far this week after falling last week following the publication of mostly weaker US data. Last week’s weaker dollar sent the GBPUSD pair above 1.28 to end the week strongly in the black zone, ahead of a busy week for the pound this week.
The upcoming release of US inflation data is likely to change the prospects of a September rate cut in a surprise direction, putting the GBP/USD pair under scrutiny after rising across a large long-term resistance trend as investors gave Keir Starmer the lead in his first week as prime minister United Kingdom got the green light. A more pronounced trend could emerge for the US dollar this week, while there will also be some UK data to look forward to. This makes GBPUSD a key pair to watch this week.
Judging by the relatively calm reaction to the FTSE and the gains made by the GBPUSD pair since the handover of the premiership to Labour Keir Starmer and the resignation of Rishi Sunak, political stability seems to be the main point that investors in United Kingdom should take advantage of. Of course, a landslide victory had already been achieved weeks earlier, but first impressions of Starmer as prime minister undoubtedly delighted his supporters.
Speaking of the economy, we will have a monthly GDP estimate on Thursday in the United Kingdom data repository that will provide statistics from May, something Starmer and Labour have not had an opinion on. In any case, GDP is expected to grow by 0.2% m/m, after a steady April. If GDP or other United Kingdom data this week exceeds expectations, and given the calmer reaction to Labour’s victory, the pound could rise further, strengthening the GBP/USD pair.
EURUSD fluctuates awaiting important US price and inflation data
The EURUSD pair, in particular, serves as a measure of the relative economic health and policy between the Eurozone and the US.
The euro continues to see a lot of sideways movement, as the market continues to appear as if it will be inconclusive, so I think we are now waiting for the CPI and PPI figures in general. This is a situation where you need to be smart.
The euro rose slightly during the early hours of Wednesday, as we continue to see a lot of noisy behavior. Level 1.08 at the bottom is an important whole number that many people will watch, as the market, at least in my estimation, will continue to move from one large number to another. Level 1.08 is an area that has been important many times in the past, so it makes sense that we will continue to see it show its importance.
A rise from here could open the door to a move towards 1.09, which is also an area where we have seen a lot of noisy behavior and resistance. Therefore, I expect that it will be difficult to overcome this. On the other hand, if we manage to break below 1.08, it is worth noting that 1.07 at the bottom will be an important support level.
And of course, at this point, it looks like we’re going to move back and forth between these levels. Keep in mind that Thursday and Friday keep traders alert with the release of CPI and PPI figures. And I think between now and then, we’re spending time waiting to see what that information might be like in the United States.
In the end, it’s all about whether the Fed will cut interest rates or not and whether or not it has started to see inflation fall. So, expect a lot from nothing. And then maybe he burned the run to one of these two big figures. Overall, the euro remains very volatile.
