Dollar on the Defensive, Euro Eyes Gains, Sterling Steady.

• Dollar weakens: Despite Powell’s careful tone, the Fed’s Dot Plot (two more cuts) keeps USD on the back foot.

• Fed speakers in focus: Hawks and doves alike take the stage this week, capped by Powell’s economic outlook speech.

• Core PCE in line?: A 0.2% print would reinforce expectations for two more cuts by year-end.

• Euro resilience: Stronger PMIs and Ifo could support EUR/USD gains beyond 1.180.

• Sterling steady (for now): Bailey and Pill to speak, but without PMI surprises, EUR/GBP unlikely to move sharply this week.

USD: Calibrating the Fed Narrative
Our short-term fair value model suggests the dollar remains slightly undervalued. Part of last week’s USD weakness likely stemmed from positioning shifts following the Fed’s rate cut. While the latest dip in jobless claims pushes back against the broader downbeat jobs picture, it won’t be enough on its own to materially lift the dollar. The Fed’s Dot Plot—still pointing to two further cuts this year—continues to anchor expectations, despite Powell’s attempt to soften the dovish message.

This week, investor attention will zero in on Fed commentary. The market is looking to see whether Powell’s measured tone reflects the broader FOMC. Today’s roster includes hawks Beth Hammack, Alberto Musalem, and Tom Barkin, alongside doves like John Williams. Stephen Miran, who supported a larger cut last week, also speaks. Powell follows tomorrow with remarks on the economic outlook.

On the data front, August’s core PCE (expected +0.2% m/m) is the key release. A print in line with consensus would bolster expectations for two more cuts this year (43bp priced), keeping us moderately bearish on the dollar this week.

EUR: Room to the Upside
The eurozone’s main event is tomorrow’s PMIs, expected to consolidate recent strength, followed later by Germany’s Ifo survey. Together, these will round out the activity picture.

On the central bank side, speeches from José Luis Escriva, Philip Lane, and Joachim Nagel are in focus. So far, dovish voices on the ECB Governing Council have been quiet, but our economics team warns they could become more vocal as the year progresses, potentially clashing with Lagarde’s “good place” narrative.

EUR/USD’s short-term fair value sits at 1.190, suggesting scope for gains beyond the 1.180 handle this week as the dollar continues to fade post-Fed.

GBP: Bailey and Pill Take the Stage
The UK calendar is heavy on central bank commentary and PMIs. Governor Andrew Bailey and Chief Economist Huw Pill both speak today. Bailey reiterated last week that cuts will continue, though at a less predictable pace.

We still expect another BoE cut in November, with market pricing at just 7bp—leaving room for EUR/GBP to climb into year-end. Political noise around the November Budget may add volatility.

That said, barring a surprise in PMIs, EUR/GBP is unlikely to push much higher this week, given the lack of strong catalysts to sell the already-expensive pound.