The Forex market was a hive of activity this week, marked by significant movements in major currency pairs. With the European Central Bank (ECB) policy announcements looming, traders are on edge, as the outcomes could shape market trends for the upcoming weeks. Let’s explore the dynamics of EUR/USD and GBP/USD amidst this volatile landscape.
EUR/USD Holds Steady Ahead of ECB Meeting
EUR/USD turns sideways below 1.0950 in Thursday’s European session after rallying to a fresh four-month high on Wednesday. The pair trades with caution, as investors shift to the sidelines ahead of the European Central Bank policy meeting, which will be announced at 12:15 GMT.
This week saw EUR/USD trade with decent gains and extend its positive streak for the third consecutive week, including a visit to the key 1.0900 region for the first time since early June.
Meanwhile, the macroeconomic landscape remained stable. Investors generally expect the European Central Bank (ECB) to keep its policy rate unchanged at its meeting on Thursday, though markets still anticipate two additional cuts by the end of the year.
GBP/USD Stays in Daily Range Near 1.3000 After UK Jobs Data
GBP/USD treads water at around 1.3000 in the European session, holding its retreat from the 2024-high it set at 1.3045 on Wednesday. The UK data showed that the ILO Unemployment Rate held steady at 4.4% in the three months to May, as forecast, failing to trigger a reaction.
The Pound Sterling slides below 1.3000 against the US Dollar as UK Average Earnings decelerated in the three months ending in May. UK labor market reports the addition of fresh payrolls against a severe drawdown in the three months ending in April.
Rising expectations for Fed rate cuts in September have weighed on the US Dollar. The Pound Sterling (GBP) exhibits a subdued performance against its major peers in Thursday’s London session. The British currency drops as United Kingdom (UK) Average Earnings data, a key measure of wage growth that fuels inflation in the service sector and has been a major barrier to the Bank of England’s (BoE) confidence for interest rate cuts, decelerated as expectedly.
Choppy Sessions Ahead of Key Events
The action in foreign exchange markets remains choppy in the early European session on Thursday as market participants gear up for key events. The European Central Bank (ECB) will announce monetary policy decisions and ECB President Christine Lagarde will speak on the policy outlook in the post-meeting press conference. The US economic docket will feature the Philadelphia Fed Manufacturing Survey and weekly Initial Jobless Claims data. Investors will also pay close attention to comments from Federal Reserve (Fed) officials.
USD Under Pressure Amid Fed Comments
The US Dollar (USD) came under renewed selling pressure midweek following dovish comments from Fed policymakers. The USD Index lost nearly 0.5% and registered its lowest daily close since late March on Wednesday. Early Thursday, the index holds its ground and fluctuates in a narrow channel above 103.50. The benchmark 10-year US Treasury bond yield stays below 4.2% and US stock index futures trade modestly higher on the day.
Key Data Points to Watch
Annual Average Earnings (Including and Excluding bonuses) rose by 5.7% in the three months ending in May, below the 5.9% and 6%, respectively, from the previous month. Though the wage growth momentum slowed, it is still higher than what is needed to be consistent for achieving price stability.
Meanwhile, the Office for National Statistics (ONS) reported that employers hired 19K job-seekers in the three months ending in May, against a drawdown of 140K employees in the previous reading. In the same period, the ILO Unemployment Rate was recorded at 4.4%, remaining in line with estimates and the former release.
GBP/USD’s Traction and Future Outlook
Following Tuesday’s indecisive action, GBP/USD gained traction in the European morning and touched its highest level in a year above 1.3000. The pair could extend its uptrend once it confirms this level as support.
The data published by the UK’s Office for National Statistics showed early Wednesday that annual inflation, as measured by the change in the Consumer Price Index (CPI), remained unchanged at 2% in June as expected. In the same period, the core CPI rose 3.5%, matching analysts’ estimate and May’s increase. Services prices, which have been the sticky part of inflation, rose 5.7% on a yearly basis following the 5.6% increase recorded in May.
Conclusion
The Forex market is bracing for significant shifts as key policy decisions and economic data releases loom large. Investors are keeping a close eye on the European Central Bank’s upcoming announcements and the ripple effects across major currency pairs like EUR/USD and GBP/USD. With the added influence of Federal Reserve commentary, the trading landscape promises to remain dynamic and potentially volatile.
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