Dollar Dilemma: Will Weak Data Win Over More Fed Hawks?.
USD Weakness: Dollar remains pressured by easing geopolitical risks and dovish signals from some Fed officials.
Powell vs. Trump: Internal Fed divisions and talk of a new chair under Trump are stoking rate-cut expectations.
Data in Focus: Markets await durable goods and jobless claims for clues on potential Fed shifts.
EUR/USD Momentum: A break above 1.170 could open the door to 1.20, though dollar direction remains key.
GBP Crosswinds: Sterling is torn between upbeat market sentiment and UK fiscal backpedaling under Starmer.
USD: Markets Dare the Fed to Blink
The dollar remains under pressure, with easing geopolitical tensions and a slight dovish lean from Fed officials encouraging bearish positions. Fed Chair Jerome Powell wrapped up his Congressional testimony reiterating inflation concerns related to tariffs and offered little clarity on future rate cuts—sticking to a “wait-and-see” stance.
Tensions between Powell and the Trump camp are flaring up again. Notably, Fed Governors Waller and Bowman—both Trump appointees—are breaking ranks with Powell’s cautious tone. The market sees this as a green light to price in more rate cuts, especially with Trump reportedly eyeing an early Fed chair replacement. Dovish speculation is gaining momentum.
Attention now turns to today’s US data: revised Q1 GDP, durable goods orders, and jobless claims. Despite tame inflation, Powell hasn’t shifted dovishly, possibly holding out for softness in the jobs market. Should employment data weaken, more Fed members may pivot toward cuts. Markets currently price in just a 25% chance of a July cut, but still expect over 60bps in easing by year-end.
Today’s Fed speakers include known dove Goolsbee and hawkish-leaning Barkin, Daly, and Hammack. Downside risks for the dollar remain, though any sharp DXY move would likely need a clearer dovish tilt or renewed fiscal fears to gain momentum.
EUR: Dollar Weakness Fuels Euro Hopes
EUR/USD finally cleared the 1.163 barrier and is now eyeing the tough 1.170 level—heavily loaded with long-option positions. Mild euro support may have come from NATO’s new 5% defense pledge and Trump’s more diplomatic tone (Spain aside), but in reality, this remains a USD-driven rally.
The eurozone calendar is quiet today, although ECB figures Lagarde, Schnabel, and Guindos are set to speak—though none are guaranteed to weigh in on rates. Should EUR/USD break 1.170, talk of 1.20 will likely grow louder, though further weakness in US data is probably a prerequisite.
GBP: Political U-turns Cloud Sterling’s Summer
Sterling faces a summer of mixed signals. On one hand, global risk appetite could lift the pound; on the other, spiraling public spending remains a drag. Prime Minister Keir Starmer is reportedly scaling back efforts to curb disability benefit growth, following internal Labour backlash.
Initially, the government aimed to save £5 billion by tightening Personal Independence Payment eligibility, but party resistance has torpedoed that plan. This follows Starmer’s earlier retreat on restricting pensioner fuel allowances. These backtracks signal a politically cautious administration, possibly unsettling markets already worried about fiscal discipline.