ECB Interest Rate Decision the Key Today as Middle Eastern Conflict Continues.

USD: A day of mixed fortunes unfolded for GBPUSD, marked by consolidation during the European session as the Dollar Index (DXY) initially faced some downward pressure. However, as the US session progressed, a surge in US Yields gave a boost to the US Dollar, reigniting the bullish rally in the Dollar Index. The big question on traders’ minds is how high the Dollar Index can climb. As we discussed earlier this week, the DXY seems unlikely to face sustained selling pressure at the moment, primarily due to the trajectory of US Yields and ongoing geopolitical tensions. This support structure implies that any present dips are poised to provide short-term opportunities for USD buying, particularly as risk sentiment continues to fluctuate between risk-on and risk-off scenarios.

GBP: The British Pound, often referred to as “Cable” in forex trading, has been struggling to find solid support in UK data releases this week. Although labor data has shown some positivity, comments from the Bank of England (BoE) Governor and policymakers have strongly suggested that the Bank is done with rate hikes for 2023. This belief appears to be weighing down the GBP, leaving GBPUSD vulnerable to a potential breach of the psychologically significant 1.2000 level. Some early USD weakness in the European session prevented a steep decline until the latter part of the US session. A daily candle close below the 1.2080 handle could be elusive, with central bank meetings becoming the focal point, potentially leading GBPUSD to trade within a range of 1.2080 to 1.2280.

EUR: Recent lending data and lackluster purchasing managers’ surveys have affirmed what traders had already suspected: Europe’s hiking cycle has come to a halt. In fact, all 85 economists polled by Reuters last week expect the European Central Bank (ECB) to maintain its current interest rates. Market expectations for a rate hike are nearly nonexistent, and there are concerns of an impending recession. In the absence of any surprises, market sentiment is likely to pivot toward corporate earnings, with companies like Unilever, Mercedes, StanChart, and Amazon scheduled to report on Thursday. Additionally, market attention will be on the behavior of yields and the yen. The Euro is attempting to recover from a recent downturn against the Pound Sterling following disappointing Purchasing Managers’ Index (PMI) figures for both the EU and the UK. As we approach Thursday’s ECB Monetary Policy Statement and rate call, the Euro is showing signs of resilience as it attempts to regain lost ground.