Dollar weakness deepened in Asian session, with the greenback falling to multi-year lows against both Euro and Sterling. For now, downside pressure remains concentrated against European majors. The latest catalyst is a show of fiscal resolve from NATO allies, who agreed to more than double their defense spending target to 5% of GDP by 2035, seen as a long-term fiscal and industrial boost to Europe’s economy and security posture.
The NATO decision breaks down into 3.5% spending on traditional military capabilities and 1.5% on broader resilience like cyber and infrastructure. While symbolic in the short term, the commitment highlights the region’s renewed strategic coherence and investment direction—drawing investor confidence at a time when the US outlook is clouded by trade policy and inflation uncertainty.
Meanwhile, Dollar has now fully reversed its recent safe-haven gains after last week’s escalation in the Middle East. With the Israel-Iran ceasefire holding, even amid minor violations, markets are turning back to broader US vulnerabilities, especially fiscal risks, tariffs, and the greenback’s trustworthiness as a haven asset.
Monetary policy divergence is also weighing on Dollar. While ECB may be near the end of its cycle, Fed is still expected to resume cuts later this year. Markets are increasingly convinced that a September cut is likely. And after all, Fed’s latest dot plot reflects two cuts this year, with the 2025 median rate at 3.9%,
In the currency markets, Dollar is back as the worst performer of the week, followed by the Loonie and Yen. European currencies are clearly benefiting, with Sterling leading gains, followed by Swiss franc and Euro. Aussie and Kiwi are stuck in the middle.
Technically, EUR/CAD’s strong break of 1.5959 resistance this week confirms long term up trend resistance. Based on current momentum, there shouldn’t be much difficulty in breaking through 1.6151 long term resistance (2018 higher). Next near term target is 61.8% orojection of 1.4483 to 1.5959 from 1.5598 at 1.6510.
In Asia, at the time of writing, Nikkei is up 1.49%. Hong Kong HSI is down -0.65%. China Shanghai SSE is up 0.10%. Singapore Strait Times is up 0.11%. Japan 10-year JGB yield is up 0.014 at 1.418. Overnight, DOW fell -0.25%. S&P 500 fell -0.00%. NASDAQ rose 0.31%. 10-year yield closed flat at 4.293.
Fed’s Powell: No modern precedent for Trump’s tariff, must proceed carefully
Fed Chair Jerome Powell defended the central bank’s cautious stance on interest rates during day two of his Congressional testimony, citing significant uncertainty around the inflationary impact of tariffs. While Powell acknowledged tariff-driven price hikes could ultimately be transitory, he said Fed must prepare for the possibility that inflation proves more persistent. “As the people who are supposed to keep stable prices, we need to manage that risk,” Powell emphasized.
Powell emphasized that the Fed is operating in largely uncharted territory, warning that the magnitude of potential new tariffs dwarfs those imposed during Trump’s first term, and those earlier measures came when inflation was subdued. “There is not a modern precedent,” he said, cautioning against prematurely adjusting policy without a clearer picture of the economic impact.
“If it comes in quickly and it is over and done, then yes, very likely it is a one-time thing,” he said of tariff inflation. But if the Fed misjudges the situation, “people will pay the cost for a long time.”
GBP/USD Daily Outlook
Daily Pivots: (S1) 1.3613; (P) 1.3642; (R1) 1.3694; More…
GBP/USD’s rally continues today and intraday bias stays on the upside. Current rise from 1.2099 should target 100% projection of 1.2099 to 1.3206 from 1.3138 at 1.3813 next. On the downside, below 1.3589 minor support will turn intraday bias neutral and bring consolidations. But downside should be contained above 1.3369 support to bring another rally.
In the bigger picture, up trend from 1.3051 (2022 low) is in progress. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Outlook will now stay bullish as long as 55 W EMA (now at 1.2948) holds, even in case of deep pullback.
