USD Holds Strong, GBP and EUR Await Triggers.

• USD remains strong in early European trade, supported by higher US Treasury yields post robust NFPs.
• Uncertainty surrounds expectations of a June rate cut by the FOMC, previously anticipated but now uncertain.
• GBP shows little movement recently, suggesting a potential buildup of volatility awaiting triggers.
• Euro to Dollar exchange rate recovers after initial losses post strong US job report, indicating a high barrier for further USD strength.
• ECB expected to maintain interest rates but may hint at a June rate cut, with future cuts dependent on economic data, aiming to maintain Euro weakness against the Dollar.

USD: The US dollar continues to gain traction in early European trading, bolstered by higher US Treasury yields. Last week’s robust Non-Farm Payrolls (NFPs), surpassing expectations at 303k compared to the projected 200k, have tempered anticipations of a June rate cut. Initially priced in by financial markets, the likelihood of a cut by the FOMC on June 12th is now uncertain. US Treasury yields surged post-Jobs Report, with the 2-year yield nearing mid-November highs at 4.77%, and the benchmark 10-year yield hitting a multi-month peak of 4.475%. Key drivers for the USD this week include Core inflation data for March and the release of the latest FOMC minutes on Wednesday. Currently, the US dollar index hovers around the 38.2% Fibonacci retracement level at approximately 104.35, supported by multiple simple moving averages (SMAs) and a bullish 50-day/200-day crossover.

GBP: Sterling has experienced minimal movement since Friday, indicating a period of subdued volatility. However, this apparent calm could foreshadow impending market shifts, waiting for a catalyst such as unexpected central bank statements or unforeseen events. The current lack of volatility suggests a buildup of pressure in major currency pairs, particularly impacting GBP. There is some higher tier data out in the latter half of this week that may act as the catalyst to induce some price action.

EUR: Despite initial losses following the robust US job report last Friday, the Euro to Dollar exchange rate rebounded, signaling a high bar for further USD strength. The European Central Bank (ECB) is expected to maintain interest rates but may introduce guidance hinting at a potential June interest rate cut. Market consensus anticipates such a move, and for the Euro to weaken, the ECB may need to suggest additional rate cuts beyond June, dependent on economic data. ECB President Lagarde is anticipated to confirm the market’s expectation for a June rate cut while emphasizing that future cuts hinge on data outcomes. This approach aims to maintain uncertainty and potentially limit Euro strength against the Dollar. According to Roberto Mialich, FX Strategist at UniCredit Bank in Milan, Lagarde’s indication of a June rate cut could curb EUR-USD strength, while ambiguity regarding the pace of easing post-June might establish a support level around 1.08 for EUR-USD.