FX Market Update: Dollar on the Defensive Ahead of Jackson Hole.

USD – Remains on the back foot, with the Dollar Index softening below 99.00 amid ongoing US fiscal concerns, while markets look ahead to key US inflation data and guidance from Jackson Hole later this week.

EUR – Continues to find support against the dollar, with analysts seeing scope for further EURUSD upside towards 1.1800, although stretched positioning may limit the pace of gains in the near term.

GBP – Is benefiting from broad dollar weakness, with sterling supported by the softer USD backdrop ahead of a data-heavy week for global markets.

USD: The dollar starts the week under pressure after the US Dollar Index slipped below the 99.00 level amid concerns surrounding the US fiscal outlook. Market participants are now turning their attention towards the Jackson Hole symposium, where remarks from former Fed Governor Kevin Warsh are expected to attract significant interest. In addition, US PCE inflation data later this week is likely to be a key driver for rates expectations and broader dollar direction. Until then, softer sentiment towards the greenback may continue to provide support for G10 currencies.

EUR: The euro remains well supported, with EURUSD holding onto recent gains despite signs that the rally may be becoming stretched in the short term. Technical analysts at UOB see scope for the pair to extend towards the 1.1800 area, highlighting that the broader trend remains constructive. However, separate market commentary suggests EURUSD is approaching overbought territory after its recent advance, which could temper the pace of further gains. For now, the euro continues to benefit from a weaker dollar environment, with upcoming US data likely to determine whether the rally can be sustained.

GBP: Sterling is continuing to gain from the softer dollar backdrop, although trading remains largely driven by broader USD sentiment rather than domestic UK developments. With markets focused on Jackson Hole and US inflation data this week, GBPUSD may continue to take its cues from movements in the dollar and global rate expectations. Against the euro, sterling could remain relatively rangebound unless fresh UK economic data provides a clearer direction for Bank of England expectations.

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