Forex. US Dollar: Fed Minutes and Steady Yields May Set the Stage for a Summer Rebound – ForexNews.PRO
Currency markets anticipate a turbulent week, potentially disrupting the recent calm, though the impact shouldn’t match April’s volatility. The US dollar is likely to remain weak this week.
USD: Preparing for Trade Developments
FX markets begin the week calmly. Since April, FX volatility has decreased as Washington prioritizes deal-making over ideological tariffs.
Current trade status: Deals exist for the UK and Vietnam. A truce is in place with China. The focus is on last-minute deals, tariff increases, or extensions. Attention will likely center on major trading blocs like the EU and Asia, the source of most US trade imbalances.
Threats of 50% tariffs could briefly disrupt the positive risk environment, but with a market already underweight on the dollar, its downside may be limited. Recent US macro data slightly supported the dollar. US yields have risen 10-12bp, suggesting the Federal Reserve may not rush into a July rate cut.
Beyond trade, the US data calendar is quiet. Focus may shift to the Fed after the June FOMC minutes. The energy market is also in focus, with OPEC+’s increased supply potentially pressuring crude oil. Brent is forecast to drop to $60/bl later this year, benefiting global growth and energy importers in Asia and Europe.
DXY has found support around 96.50, potentially leading to consolidation this week.
EUR: Potential Volatility Increase
White House threats of 50% tariffs on the EU wouldn’t be surprising, but markets may not take them seriously. Any EUR/USD dip on such news would likely attract buyers.
The EU’s negotiating position is reportedly divided. Germany and its auto supply chain want a quick deal for certainty. France and Spain prefer a tough stance and retaliation. A two-month extension for a deal seems plausible.
The EU is also negotiating lower tariffs on steel, aluminium, cars, and pharma (impacting Ireland). A US deal with Switzerland on pharma boosted healthcare stocks, potentially positive here.
A significant EUR/USD rally this week seems unlikely. A slight risk exists to the 1.1900/1910 area if Washington misjudges the situation and equities fall sharply, but this is improbable. A 1.1700-1.1830 range this week is favored, avoiding attempts to predict a EUR/USD top.
The eurozone data calendar is light. Germany’s upper house approval of nearly EUR50bn in fiscal stimulus could signal a shift in domestic demand prospects in Europe – a long-term positive for EUR/USD.
GBP: Slow Sterling Recovery
EUR/GBP remains relatively bid despite easing UK Gilt market stress. The fallout from last week’s welfare reform reversal suggests future tax increases in November. The weaker sterling story shifts from sovereign risk to tighter fiscal and looser monetary policy.
Slightly better UK monthly GDP data this Friday could support sterling, but 0.8600 now appears to be the near-term floor for EUR/GBP.
