• USD Resistance: The Pound to Dollar exchange rate faced resistance, as Jerome Powell’s cautious remarks on interest rate cuts strengthened the Dollar, pushing GBP/USD below 1.28.
• Fed’s Stance: Powell’s testimony indicated the Fed is waiting for more positive economic data before considering rate cuts, creating market skepticism about immediate cuts.
• GBP Political Boost: The Pound received support from the UK Labour Party’s election victory, with new Chancellor Rachel Reeves emphasizing economic growth and stability.
• BoE Policy Outlook: Outgoing BoE policymaker Jonathan Haskel suggested the UK economy could endure further restrictive policies, providing additional support for the Pound.
• EUR Uncertainty: The Euro struggled due to a lack of new data and political uncertainty in France, where potential gridlock between left-wing alliance NFP and President Macron’s party raised concerns about future stability.

USD: The Dollar Rally Hits a Wall Amid Powell’s Remarks The Pound to Dollar exchange rate struggled once again after encountering a well-known technical barrier and a cautious outlook from Jerome Powell regarding interest rate cuts. Speaking to U.S. lawmakers on Tuesday, Powell did not provide any clear indications that the Federal Reserve was prepared to cut rates in September. “Powell’s opening statement for his congressional testimony today offers few clues about the potential timing of interest rate cuts, with the key line that the Fed is still looking for ‘more good data’ to strengthen its confidence that inflation will return to target,” noted Stephen Brown, Deputy Chief North America Economist at Capital Economics. The Fed Chair’s cautious message bolstered the Dollar, pushing GBP/USD back below the 1.28 level. Technical analysis shows this retreat aligns with significant resistance, and while some indicators suggest potential near-term upside for GBP/USD, levels around 1.2820 appear challenging to maintain. This resistance prompts many market participants to reduce their GBP/USD exposure at these levels. The Fed’s dual mandate to manage inflation and employment suggests a careful balance in rate decisions. “He is fretting a bit more about the potential costs of waiting too long to ease,” said Ian Shepherdson, Chairman and Chief Economist at Capital Economics. However, the market remains skeptical about imminent rate cuts, supporting the USD. “Federal Reserve Chair Jerome Powell avoided clearly telegraphing a September rate cut, maintaining the nuanced stance that has characterised his comments over the last month,” added Karl Schamotta, Chief Market Strategist at Corpay. “The dollar is inching higher, Treasury yields are up slightly, and equity indices are seeing modest retreats as traders incrementally lower the odds on a rate cut at the September meeting.”

GBP: Sterling Faces Challenges Amid Political Changes With no new UK data to drive movement, the Pound (GBP) remained vulnerable after the UK Labour Party’s sweeping victory last Friday. Positive market reactions to Labour’s win helped support Sterling, as investors and economists hoped for renewed political stability in the UK. Newly appointed UK Chancellor Rachel Reeves reiterated Labour’s commitment to strengthening the UK’s economic foundation, aiming to boost domestic growth. Reeves emphasized: “Sustained economic growth is the only route to improving the prosperity of our country and the living standards of working people. It is now a national mission. There is no time to waste.” Additional support for GBP came from comments by outgoing Bank of England policymaker Jonathan Haskel, who suggested that the UK economy could handle further restrictive policies in the coming months.

EUR: Euro Struggles Amid Political Uncertainty in France The Euro (EUR) faced difficulties attracting investor interest on Tuesday due to a lack of new data from the Eurozone and political uncertainty in France. Following the second round of general elections, France’s left-wing alliance Nouveau Front Populaire (NFP) outperformed Marine Le Pen’s Rassemblement National (RN) party, securing first place with 182 seats, while President Macron’s centrist party followed with 163 seats. Although markets were initially relieved that RN’s unsustainable fiscal policies did not dominate, concerns about a potential political gridlock between NFP and Macron’s party could lead to increased volatility for the Euro. “The political forces that joined to prevent an RN government have little else in common. Their views on migration, social and cultural issues, fiscal policy, and the need for pro-growth reforms are often diametrically opposed,” commented Holger Schmieding, an economist at Berenberg. “Forming a government will not be easy. Times are tough, emotions are running high – and France has no tradition of forging coalitions between parties of very different political persuasions.”