US dollar holds firm ahead of Fed, but gains look tentative

The US dollar climbed to a five-week high yesterday, while the S&P 500 came close to notching a seventh consecutive record close. The rally in equities eased slightly after JOLTS job data fell short of expectations, cooling some of the recent enthusiasm on Wall Street.

The dollar index remains stable around the 98 level, with newly established support near 98.700. Mixed economic indicators had a limited effect on the currency. Confidence among consumers exceeded forecasts, but job openings came in below expectations, registering 7.437 million for June against a projected 7.5 million. Layoffs rose marginally to 1.604 million from 1.601 million, suggesting underlying labour market demand remains intact.

That said, support at 98.700 may prove short-lived as markets await further economic data, today’s GDP figures, and the outcome of the Federal Reserve’s policy meeting. Although tariff headlines continue to draw attention, they are expected to have less influence unless major developments occur. Today’s GDP reading is expected to signal recovery after the previous decline, which had been distorted by an import surge driven by concerns over tariff hikes.

Investor focus is now squarely on the Fed. While the dollar’s recent strength has largely come from fading confidence in the euro, it is also being supported by belief that the Fed will continue following data rather than politics. The consensus suggests no immediate policy change, but cautious communication may be used to limit expectations for future cuts.

Even so, markets could react quickly to any signs of a more dovish stance. The recent JOLTS numbers were not particularly strong, and last month’s nonfarm payroll report had a skewed composition due to a public sector hiring spike. With July’s jobs report still two days away, the Fed faces a decision without a complete picture of the labour market.

Euro faces a turning point as data and trade shape sentiment

EUR/USD began the week under pressure following the latest trade agreement between the US and EU. While the deal avoided a direct escalation in tensions, it did little to improve Europe’s position. The terms largely favour the US, with 15 percent tariffs remaining in place on many EU exports and new commitments to boost US investment and commodity purchases. Conflicting comments from policymakers in Brussels have only added to the uncertainty. While disappointment is evident in the euro’s short-term reaction, the longer-term impact of such high tariffs could fall more heavily on the US economy.

In the short run, however, the dollar remains in the driver’s seat. The euro has dropped more than 1.5 percent since the deal was announced, with investors refocusing on fundamentals. The US economy is expected to post 2.4 percent growth in the second quarter, and core PCE is holding at 2.7 percent. In contrast, the eurozone is showing signs of stagnation, with flat GDP and inflation slipping below the two percent target. This widening gap reinforces support for the dollar, especially now that the historical link between US short-term yields and the dollar is reasserting itself.

Earlier this year, the euro had taken on a safe-haven role during trade turmoil, but that now seems to be fading. Still, this recent slide may not indicate a fundamental shift. Monday’s 1.3 percent decline could simply reflect a cleanout of overextended long positions. The rally in EUR/USD earlier this year was the strongest six-month surge since 2003, which also saw a temporary setback before resuming a multi-year uptrend.

Looking at previous cycles, especially the first and second terms under Trump, EUR/USD price patterns show similar rhythms. While history may not repeat, it often follows familiar themes. This suggests that the current decline may be a pause rather than a lasting change in trend. Over time, if trade frictions increasingly affect the US, the longer-term case for euro resilience may remain valid.

Sterling struggles near key support as economic concerns grow

Sterling continued its slide yesterday, falling for the fourth session in a row and touching a two-month low of 1.3308. It briefly broke below the 100-day moving average, a level that had held throughout the first half of the year. A confirmed close below this threshold could open up further losses.

The currency pair has encountered new resistance around 1.3360 and continues to trade just above its 100-day average at 1.3337. If this resistance proves too strong, the 100-day mark will likely be tested again—especially if upcoming US data continues to outperform and UK data remains limited.

Should the pair close below the moving average, the next major support sits near the May low of 1.3140.

On the domestic front, the UK economy is showing signs of stagflation. Retail data earlier this week revealed a tenth straight monthly decline in sales. Meanwhile, the Shop Price Index rose to 0.7 percent, more than double the expected figure and the highest reading in over a year. Although the UK has been somewhat insulated from trade-related market shocks, internal economic challenges persist.

This combination of sluggish growth and sticky inflation increases pressure on the Bank of England. Markets now assign over a 93 percent probability to a 25 basis-point rate cut at next week’s meeting.