Forex overview. EUR/USD: Trade Deals Fuel Sense of Optimism – ForexNews.PRO
Globally, interest rates are on the rise, fueled by a wave of optimism in equity markets. A key driver this week appears to be the US-Japan trade agreement, coupled with the anticipation of an imminent US-EU accord. Adding to this momentum, European Central Bank (ECB) President Christine Lagarde recently offered a more positive assessment of economic activity, suggesting continued support for the euro.
EUR: Euro Bolstered by Economic Resilience The EUR/USD pair experienced a notable surge following yesterday’s ECB press conference. President Lagarde’s characterization of the economy as resilient and exceeding expectations resonated with investors. With inflation aligning with the 2% target and Lagarde emphasizing the ECB’s “good place,” doubts arose regarding the necessity of further accommodative rate policies later in the year. Consequently, two-year EUR swap rates climbed approximately 5 basis points, contributing to a 0.5% increase in EUR/USD.
Further gains may be anticipated this morning if the German Ifo expectations index sustains its upward trend, driven by expectations of increased business investment spurred by government spending. EUR/USD may attempt to retest the 1.1830 peak, and this positive narrative is poised to benefit the euro broadly. EUR/CHF stands out, as a less dovish ECB stance would be welcomed by the Swiss National Bank, potentially facilitating a correction back to the 0.9400 level.
The aforementioned scenarios are contingent on the smooth progress of US-EU trade negotiations, including sectors like automobiles within a possible 15% baseline tariff framework.
USD: Mixed Signals for the Dollar
After facing significant pressure in recent days, the dollar found some modest support yesterday. Domestic data offered slight encouragement, with weekly jobless claims dipping again, a robust performance in the service sector lifting the US composite PMI to its highest since December, and June’s new home sales proving not as weak as anticipated. Meanwhile, US equity markets continue to climb to record highs, bolstered by strong second-quarter earnings and expectations that the Federal Reserve will cut rates later in the year.
In equity markets, buy-side surveys indicate that investors’ cash reserves are relatively low, suggesting that market players may already be fully invested. While there’s no obvious trigger for a near-term equity correction (barring potential tariff-related tensions in August), traders may need to approach the summer with caution and flexibility.
Today’s US economic calendar is fairly light, but next week promises to be eventful, featuring the FOMC meeting, June PCE inflation data, key tariff deadlines, and July payroll numbers. Our outlook leans towards the dollar finding some stability this summer, supported by higher inflation and a delay in Fed rate cuts. However, this perspective contrasts with the prevailing market pessimism toward the dollar.
The US Dollar Index (DXY) is likely to hover within a 97.00–97.70 range for now. That said, a stronger-than-expected German Ifo index today could push EUR/USD higher and add downside risk to this outlook.
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GBP: A Less Dovish ECB Boosts EUR/GBP
A relatively hawkish tone from the European Central Bank has pushed EUR/GBP close to the 0.87 mark. Further optimism from today’s German Ifo survey could see the pair testing April’s 0.8735 high once again. This contrasts with lackluster UK economic activity. The ECB’s more optimistic commentary on a resilient Eurozone economy and potential growth in business investment (should uncertainty ease) presents a stark comparison to the constrained fiscal environment in the UK. On fiscal policy, there’s speculation that 5 November could be set as the UK budget day.
While our earlier expectations saw EUR/GBP edging toward 0.88 next year, a less dovish ECB could accelerate this timeline. However, much will depend on forthcoming Eurozone hard data and inflation metrics. According to our Eurozone team, these factors might still pave the way for a somewhat underpriced (25%) chance of an ECB rate cut in September.
