Mixed Economic Signals Keep Major Currencies in Tight Range.

• USD Resilience: The US Dollar remains strong despite a slight dip last week, with key economic data such as Sentix Investor Confidence and May Consumer Credit Change data expected to influence its movement.
• US Jobs Report: June Nonfarm Payrolls exceeded expectations with a 206,000 increase, but the revision of May’s data and a rise in the Unemployment Rate to 4.1% tempered demand for the USD.
• French Elections Impact on EUR: The euro fell 0.3% after the left-wing New Popular Front won 182 seats in the French National Assembly, creating political uncertainty and potential legislative gridlock.
• GBP Strength: The Pound to Dollar exchange rate rose 1.35% last week due to expectations of a Federal Reserve interest rate cut and political stability following the UK General Election.
• Market Outlook: The GBP/USD could trade within a tight range around 1.28 ahead of crucial US inflation data, which is expected to show a decline, potentially increasing the odds of a Federal Reserve rate cut in September.

USD: The US Dollar (USD) remains resilient against its major competitors at the start of the new week. After a nearly 1% drop and ending a four-week winning streak last week, the US Dollar Index hovers around 105.00 in a narrow range. Key events include the Sentix Investor Confidence for July in Europe and the May Consumer Credit Change data from the US, which could provide fresh momentum. On Friday, data from the US Bureau of Labor Statistics (BLS) showed Nonfarm Payrolls (NFP) increased by 206,000 in June, surpassing the 190,000 expected by the market. Despite this, the USD struggled for demand as the BLS revised May’s NFP rise down from 272,000 to 218,000. Additionally, the Unemployment Rate increased to 4.1%, and annual wage inflation decreased to 3.9% from 4.1% in May. In France, the left-wing New Popular Front alliance won 182 seats in the National Assembly, falling short of the 289 needed for a majority. President Macron’s centrist Ensemble Alliance secured 163 seats, while Marine Le Pen’s far-right National Rally (RN) got 143 seats. This development did not significantly impact the EUR/USD, which traded steady around 1.0830.

EUR: The euro dropped 0.3% during early Asian trading on Sunday following France’s legislative elections, where the New Popular Front party emerged victorious. The latest projections indicate the left-wing alliance secured 182 of the 577 National Assembly seats, while President Macron’s centrist alliance is expected to get 168 seats. This result is seen as a setback for the Ensemble group, prompting Prime Minister Gabriel Attal to resign. Despite earlier market rallies on the assumption that the far-right National Rally wouldn’t secure a majority, new uncertainties have emerged. The far-right RN is forecasted to win 143 seats. “It looks like the anti-far right parties got significant support,” said Simon Harvey, head of FX analysis at Monex Europe. However, he noted that from a market perspective, the outcome doesn’t change much, and legislative gridlock is likely. The leftist New Popular Front (NFP) alliance, not known for fiscal conservatism, plans to repeal Macron’s pension reform, increase the minimum wage, and implement a 10% pay raise for civil servants, among other measures. These proposals would boost public spending by €150 billion, funded by higher taxes on the wealthy.

GBP: The Pound to Dollar exchange rate (GBP/USD) increased by 1.35% last week due to renewed expectations of an interest rate cut by the Federal Reserve in September. US economic data, including Friday’s job report, suggest a slowing economy that might soon need lower rates. Contributing to the pound’s strength was the clear outcome of the UK General Election, which brought a period of relative political stability. “GBP/USD rose by 1.29% last week, indicating potential for a larger recovery as political risk in the UK diminishes,” says Kathleen Brooks, an analyst at XTB. “The next key level is $1.30.” Derek Halpenny, head of FX research at MUFG Bank Ltd., noted that improved political stability and stronger-than-expected economic growth have led to raised GBP forecasts. GBP/USD is trading above key moving averages with a positive RSI, indicating further potential gains. Significant resistance is at 1.2860, with another resistance level at 1.2840. Support is at 1.2785; breaching 1.2770 could halt the GBP’s advance. The Pound-Dollar might trade within a tight range around 1.28 ahead of Thursday’s critical US inflation data. Headline CPI is expected to decline to 3.1% year-on-year, down from 3.3% in May, signaling renewed disinflation and increasing the likelihood of a Federal Reserve rate cut in September, which could impact the Dollar. In the UK, a GDP update on Thursday is not expected to significantly affect the market ahead of next week’s crucial inflation and labor market data.