EURUSD softens over dovish ECB
The euro drifts lower as the ECB makes its next move conditional. After its ninth consecutive interest rate hike, the ECB wants to keep all options on the table for September. That could be interpreted as a dovish shift revealing a split among policymakers, between those who see a greater risk of recession and those who are determined to “break the back” of inflation. Record-low unemployment might keep inflationary pressures up, but should the upcoming CPI confirm a steady downtrend, the central bank would be incentivised to pause its tightening. The pair is pulling back from 1.1250 and may test 1.0840.
GBPUSD advances as BoE to keep tightening
Cable moves higher as the Bank of England may keep its forward guidance hawkish. The market has already priced in a quarter-point rate increase by the central bank. A main driver of the price action is the ebb and flow of expectations for the BoE’s peak rate which has dropped below 6%. Signs that UK inflation is cooling down amid a softer job market would offer policymakers some respite. Still, most market participants expect the BoE to stay outright hawkish for a while as the country grapples with the worst inflationary pressure among developed economies. The pair is heading towards 1.3300 with 1.2700 as a fresh support.
AUDUSD rallies as commodities recover
The Australian dollar recovers as risk appetite improves across the board. Sentiment about the Aussie is at a crossroads right now, split between a pause in the RBA’s tightening cycle and a recovery in the commodity market. A weaker CPI report in the second quarter might ease the pressure for another interest rate hike, prompting markets to scale back peak RBA rates. However, more policy support for the Chinese economy – the world’s leading commodity consumer – could be a bullish catalyst for commodity prices and related currencies such as the Aussie. 0.6900 is the closest resistance and 0.6600 the first support.
SPX 500 rises as Fed makes hike conditional
The S&P 500 hits a 16-month high as a potential Fed hike pause drives risk-taking. Chair Jerome Powell has stated that further decisions would be data dependent, leaving the door open for future adjustments. While it means that more hikes are probable and a rate cut this year unlikely, conditionality makes the tone softer, and would encourage speculations for a policy hold in September. In the meantime, tech megacaps’ heavy involvement in the AI space definitely contributes to the euphoria and helps investors look past a bag of mixed quarterly results. The index is testing the key resistance of 4640 and 4390 is the first support.
