The Euro and British pound are trading cautiously against the US dollar as markets await the release of the minutes from the Federal Reserve’s latest meeting. At its July meeting, the Fed left interest rates unchanged and reiterated that future decisions would depend on incoming economic data.
Investors will pay particular attention to how FOMC members assessed inflation risks, labour-market conditions and the outlook for interest rates. Following softer inflation data and signs of a cooling labour market, a more dovish tone in the minutes could strengthen expectations of monetary easing and weigh on the dollar. Conversely, a continued emphasis on inflation risks and a restrictive policy stance could provide additional support for the US currency.
For sterling, today’s UK inflation figures will provide an additional catalyst. The data will be closely assessed for clues about the Bank of England’s next policy steps. Persistent price pressures could reduce the scope for further monetary easing and support the pound, while a more pronounced slowdown in inflation could reinforce expectations of lower interest rates.
With few major domestic catalysts for the euro, EUR/USD is likely to remain particularly sensitive to movements in the US dollar. As a result, the FOMC minutes could become a key driver of the pair’s next move.
EUR/USD
EUR/USD tested the June highs near 1.1600 yesterday. From a technical perspective, the pair could extend its advance towards 1.1660–1.1680 if the previous session’s high is successfully turned into a support level.
Failure to establish a firm foothold above the current levels, however, could trigger a corrective move and bring the pair back towards the 1.1500 support area.
Key events for EUR/USD:
- today at 12:30 (GMT+3): German 10-year Bund auction;
- today at 17:30 (GMT+3): US crude oil inventories;
- today at 21:00 (GMT+3): release of the FOMC minutes.
GBP/USD
GBP/USD buyers have managed to push the pair above the important 1.3500 resistance level over the past few sessions. If the pair can maintain its position above this threshold, the next upside targets could be found around 1.3600–1.3640.
A decisive move back below 1.3500, on the other hand, could signal the start of a bearish correction towards the 1.3430–1.3470 area.
Key events for GBP/USD:
- today at 09:00 (GMT+3): UK Consumer Price Index (CPI);
- today at 11:30 (GMT+3): UK house price index;
- tomorrow at 15:30 (GMT+3): US Philadelphia Fed Manufacturing Index.
EUR/USD and GBP/USD are both holding close to important technical levels, leaving the next directional move dependent on fresh fundamental signals. UK inflation will be the first major catalyst for sterling, while the FOMC minutes represent the main event for both currency pairs.
A more dovish message from the Federal Reserve could put renewed pressure on the dollar and support further gains in the euro and pound. Conversely, a persistently hawkish stance could strengthen the US currency and trigger corrective declines in both EUR/USD and GBP/USD.
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