Euro Stagnates, Pound Strengthens, Dollar Steadies.

• Euro Stagnation: The Euro has been fluctuating around the 1.09 level without significant movement, with key levels like 1.0950 and 1.0880 likely to dictate its next direction.
• Pound Gains: The British Pound strengthened against most major currencies as investors focus on upcoming UK employment and inflation data, with expectations of a potential slowdown in wage growth.
• Market Uncertainty: The currency markets remain volatile, influenced by uncertainty about the global risk environment and unclear signals from the Federal Reserve on future interest rate decisions.
• US Political Influence: Recent polls favoring Kamala Harris over Donald Trump in key states have weakened the US Dollar, as Trump’s trade policies are seen as supportive of the Dollar.
• Inflation Watch: Expectations of continued disinflation in the US and potential upside risks for UK inflation are key factors that could influence the Dollar and Pound in the coming days.

EUR: The Euro has been treading water recently, hovering around the 1.09 mark without any significant movement. This level has drawn considerable attention due to its psychological importance as a large, round number and its history of acting as a pivot point. The market seems to target such key levels, so if the Euro rallies and breaks above 1.0950, a move towards 1.10 could be on the horizon. Conversely, a dip below 1.0880 might lead to a drop towards 1.08. The Euro market remains highly volatile, with traders uncertain about whether we’re in a risk-on or risk-off environment. Adding to the uncertainty is the lack of clarity on the Federal Reserve’s next moves, which only further complicates the picture. This back-and-forth action, oscillating between significant levels, has been the norm for the past two years, and it’s unlikely to change in the near term.

GBP: The British Pound gained ground against most major currencies in Monday’s London session, with the exception of the Australian and New Zealand Dollars. Investors are eyeing upcoming UK employment data for the three months ending in June and the Consumer Price Index (CPI) data for July, set to be released on Tuesday and Wednesday. The UK employment report is expected to show a slight rise in the ILO Unemployment Rate to 4.5%, up from 4.4%. Additionally, attention will be on the Average Earnings Excluding Bonuses data, a crucial indicator of wage growth that has been driving inflation in the service sector. Wage growth is anticipated to slow significantly to 4.6% from the previous 5.7%, which could fuel expectations of potential interest rate cuts by the Bank of England (BoE). Despite this, BoE’s Monetary Policy Committee member Catherine Mann expressed concerns about persistent inflationary pressures, noting that it could take years for wage pressures to dissipate, even as headline inflation nears the BoE’s 2% target.

USD: The GBP/USD exchange rate has stabilized after a sharp decline in late July and early August, and there are several reasons to believe it could regain lost ground in the coming days. A retest of the 200-week average around 1.2845 is within reach. Last week, GBP/USD found support at its 200-day moving average of 1.2661 before recovering some losses. Improved risk appetite in global markets, recent US election polls, and inflation expectations on both sides of the Atlantic are among the factors that could support further gains. Notably, recent polls show Democratic candidate Kamala Harris leading former President Donald Trump in key states, undermining one of the US Dollar’s support pillars—Trump’s protectionist trade policies. This political shift, combined with ongoing disinflation in the US, suggests the Federal Reserve might cut interest rates by up to 100 basis points by year-end, which would weigh on the Dollar. Meanwhile, UK inflation poses a potential upside risk for the Pound. BNP Paribas economists highlighted that the June CPI report showed slowing inflation, with core CPI rising by just 0.06% month-on-month—the smallest increase since January 2021. While July’s report might show a slight uptick, it’s expected to remain favorable in the eyes of Fed policymakers. Consensus forecasts suggest US inflation will rise by 0.2% month-on-month in July, potentially bringing the annual rate down to 2.9% from 3% in June, keeping the disinflation trend intact and likely exerting downward pressure on the Dollar.