Ceasefire, Caution & Currency: USD Slips While GBP and EUR Push Higher.
Geopolitical risks recede, but the impact on the dollar appears mostly priced in.
Powell shows cautious openness to cuts, without bending to political pressure—markets interpret this as modestly dovish.
EUR/USD rallies stall near key resistance; a stronger US macro catalyst is needed to push higher.
GBP hits multi-year highs, buoyed by fading USD demand and ceasefire-driven market optimism.
Dollar bias remains negative, with upcoming Fed comments and data likely to guide the next leg.
USD: Powell Sidesteps Political Heat, But Dollar Still Vulnerable
Geopolitical tensions have eased with the Israel-Iran ceasefire holding steady since yesterday, removing a key layer of market risk. This calm has already bled the war premium out of oil prices, with traders now leaning into more optimistic positioning.
With the geopolitical impact largely priced in, further weakness in the USD will likely depend on domestic developments: economic data, Fed messaging, and political moves like Trump’s spending and tariff plans. Tuesday brought a mixed bag—consumer confidence dropped unexpectedly (a dollar negative), but Fed Chair Jerome Powell’s Congressional testimony offered more complexity than clarity.
Powell stuck to his cautious tone on rate cuts, maintaining the Fed’s independence from Trump’s political nudges. Yet, he showed subtle openness to future easing—enough to spark a positive response in Treasury markets. Markets were hyper-tuned for any dovish shift, especially after recent calls from Waller and Bowman for a July cut. Still, this doesn’t necessarily spell disaster for the dollar.
If Powell’s slight dovish lean stays free from political influence, it may limit downside risks for the dollar. In fact, a more flexible but independent Fed could ultimately support the greenback by keeping Treasury yields attractive. It’s not just short-term rates that matter—longer yields play a major role in FX.
Wednesday will bring part two of Powell’s testimony, alongside housing data. While some stability in USD is possible, momentum remains tilted toward weakness.
EUR: Facing Resistance, Still Riding USD Weakness
EUR/USD hit a ceiling again near the 1.160–1.165 zone, with traders looking for stronger macro drivers—likely from the US side—to break higher.
The NATO summit in the Netherlands has added political intrigue, especially with Trump’s participation. Worries linger over how committed the US remains to European defense, particularly as Spain hesitates on its 5% defense spending target. This raises doubts about Europe’s collective fiscal coordination.
Despite that, euro gains remain largely a reflection of dollar pessimism. The limited USD rebound during Middle East tensions underscores that bearish sentiment toward the greenback still dominates.
GBP: Sterling Soars as Dollar Stumbles
The pound has surged to a near three-year high of 1.3650 against the dollar in Wednesday’s European session. This strength is driven by broad USD underperformance, as safe-haven demand fades following Tuesday’s ceasefire announcement from Trump.
The dollar index (DXY) continues to hover around multi-week lows near 98.00, reflecting the market’s cooling appetite for the greenback.
Powell’s comments before the US House didn’t help either. He voiced no urgency for rate cuts, but left the door open to adjusting policy depending on how tariffs influence inflation through the summer. His stance failed to give the dollar much support, especially with uncertainty still clouding US trade policy.