FX Market Update: Intervention, Rate Expectations & Currency Momentum.

• USD – Remains under pressure following coordinated US-Japanese intervention, while lower oil prices and uncertainty around the Federal Reserve’s September decision are limiting dollar strength.

• EUR – Is expected to outperform against the dollar, supported by stronger Eurozone data, lower energy prices and the recent US-Japanese intervention.
  

• GBP – Is slightly weaker as markets scale back expectations of a Bank of England rate hike in September, with November now seen as the more likely timing.

USD:

The US dollar is coming under pressure following coordinated action between the US and Japan at the end of last week, which dominated FX markets. Traders are now bracing for the possibility of further intervention, while the dollar is also being weighed down by lower oil prices after Donald Trump called off strikes on Iran over the weekend. Despite these pressures, the dollar is holding relatively steady as markets remain uncertain over whether the Federal Reserve will deliver an interest rate hike in September. The Fed’s upcoming decision remains the key driver for the dollar in the near term, with expectations around monetary policy likely to determine whether the current weakness continues.

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EUR: 

The euro is expected to outperform the dollar, supported by stronger-than-expected Eurozone data, lower energy prices and the historic joint US-Japanese intervention, the first in 15 years. The euro’s underperformance so far may have been partly driven by speculation that US authorities were selling EUR/JPY on Friday. However, the broader outlook for the euro remains relatively positive, with the currency benefiting from improving economic data and a more favourable energy backdrop. The key underlying driver for EUR/USD will remain the Federal Reserve’s September decision, with any shift in expectations around US monetary policy likely to have a significant impact on the pair.

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GBP: 

Sterling is trading slightly lower this morning as markets continue to scale back expectations of a Bank of England interest rate hike in September. Markets are now pricing less than a 25% chance of a hike next month, while the probability of a rate increase in November has risen to around 75%. This shift in expectations is weighing on the pound, as investors push back the timing of further monetary tightening. With the September meeting looking increasingly unlikely to deliver a hike, sterling may remain under pressure in the near term, particularly if expectations for US rate policy provide further support to the dollar.

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