Powell Panic Fizzles, Focus Returns to Fundamentals.
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Powell Firing Rumour: Markets briefly reacted to Trump potentially removing Fed Chair Powell—but quickly recovered as the story fizzled.
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USD Outlook: Dollar still likely to consolidate or re-strengthen in the short term, despite weak PPI and political drama.
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EUR Focus: EUR/USD remains calm, with long-term EU budget plans carrying more weight than short-term politics.
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GBP Jobs Data: A major upward revision in UK payrolls removes urgency for BoE easing, despite continued labour market softness.
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EUR/GBP Stability: Limited market response to UK data; 0.870 acts as a strong resistance level for now.
USD: Powell Scare Quickly Fades as Markets Refocus on Data
Last Friday, we assessed the unlikely—yet not impossible—scenario of Fed Chair Jerome Powell being ousted. That low-probability risk suddenly looked much more real yesterday when reports emerged that Trump had prepared a letter to remove Powell, allegedly shared with GOP lawmakers. Even the White House seemed to confirm the move was imminent before Trump later downplayed the chances of Powell being fivddred.
Markets briefly reacted just as expected: the US yield curve steepened and the dollar slumped. However, the reaction was measured—EUR/USD never broke past 1.1720 and rate cut expectations for September only edged up by 20bps. Once Trump walked back the rumour, markets swiftly unwound their moves, suggesting a growing immunity to political noise. After this latest episode, markets will be even more sceptical about threats to Fed independence.
On the data front, yesterday’s weaker-than-expected PPI did little to counter Tuesday’s hotter CPI, keeping the market cautious. The Fed’s September pricing remains capped at about 15bps of easing. Today’s retail sales and May’s TIC flows could provide further clues. If TIC data shows foreign investors backing away from Treasuries, it might feed a more bearish long-term view of the dollar. But in the near term, the dollar looks set to consolidate or even regain some strength.
EUR: Budget Battles Ahead Could Shape Euro’s Future
EUR/USD was briefly jolted by Powell firing fears but quickly settled back into its recent comfort zone in the low 1.16s. This, despite falling US swap rates and the perceived risk of a more dovish Fed chair, shows the limited influence of external shocks when fundamentals remain steady.
On the euro side, local drivers continue to play a supporting role. Political noise from France could resurface in autumn, but for now, it’s not weighing on FX markets. At the broader EU level, a significant €2 trillion budget expansion has been proposed by the European Commission. Germany has already rejected the idea, meaning long and difficult negotiations lie ahead. If passed, this budget could have meaningful long-term implications for the euro, especially given the eurozone’s persistent productivity gap versus the US, which has helped keep EUR/USD undervalued for much of the past decade.
Short-term, EUR/USD remains data-dependent and finely balanced. A move toward 1.150 appears more probable than another push toward 1.170 in the coming weeks.
GBP: Big Payroll Revision Relieves Pressure on BoE
Last month’s shock 109,000 drop in May payrolls had markets wondering if the Bank of England might need to speed up its easing path. Today, that figure was revised dramatically—to just -25,000. Meanwhile, June saw another 41,000 jobs lost, confirming softness in the labour market but taking some pressure off the BoE thanks to the earlier revision.
Wage growth remains elevated, but when smoothed over a three-month annualised period, private-sector pay is rising at a more manageable 3.6%—still above target but well below the worrying levels of 2023.
Market reaction was modest. EUR/GBP edged slightly lower, but with the bar now higher for BoE dovishness, 0.870 should act as solid resistance in the short term.