📊 FX Market Outlook: Hawkish Fed Boosts Dollar as Central Banks Take Centre Stage.

USD – Remains the strongest of the three, supported by a more hawkish Federal Reserve and rising expectations of a rate hike in the coming months.

EUR – Is under pressure as the stronger dollar dominates price action, with limited domestic catalysts to offset shifting US rate expectations.

GBP – Remains mixed: stronger-than-expected labour market data provides support, but uncertainty surrounding the Bank of England’s outlook and political developments is keeping sterling on the back foot.

USD:

The dollar strengthened significantly following yesterday’s Federal Reserve meeting, as markets interpreted the outcome as more hawkish than expected. While policymakers voted unanimously to keep rates unchanged, the updated projections showed a split on the path ahead, with several members expecting further rate hikes over the coming months. Markets are now pricing in a 79% chance of a rate hike by the September meeting. Confidence was also boosted by the Fed’s continued commitment to returning inflation to its 2% target, helping lift the US Dollar Index by around 1% at its peak. Attention now turns to today’s weekly jobless claims, which could provide further insight into the strength of the US labour market.

EUR:

The euro fell to its lowest level since March as the stronger dollar weighed heavily on the single currency following the Federal Reserve’s hawkish stance. With few major Eurozone data releases capable of shifting sentiment this week, EUR/USD is expected to remain largely driven by US interest rate expectations. Elsewhere in Europe, attention will be on the policy decisions from the Norges Bank and the Swiss National Bank, both of which are widely expected to leave rates unchanged. However, markets will be closely watching their forward guidance for any clues on the future direction of monetary policy.

GBP:

Sterling enters a busy day with several key events in focus, including the latest UK labour market data, the Bank of England’s interest rate decision, and the Makerfield by-election. This morning’s employment figures came in stronger than expected, with wage growth, unemployment, and payrolled employee numbers all beating forecasts. Despite the encouraging data, sterling has remained subdued ahead of today’s Bank of England announcement. While rates are widely expected to remain unchanged, markets will be looking for any indication of whether policymakers believe further rate hikes may be needed to tackle persistent inflation or whether they are comfortable maintaining current policy. At present, markets continue to price in one further rate hike.