The dollar hits a four-year low, waiting for US PCE data

On Thursday, the US dollar index continued to decline, setting a low since March 2022. Weaker U.S. dollar and falling U.S. Treasury yields are usually good for gold as it reduces the opportunity cost of holding interest-free assets. However, rising oil prices and uncertainty in tariff negotiations may push up U.S. Treasury yields, thereby limiting gold prices to rise. Investors need to pay attention to Thursday's GDP data and initial jobless claims, as well as Friday's PCE data, which may trigger market volatility.

Analysis of major currencies

U.S. dollar: The dollar index fell by more than 1.3% for two consecutive days at the beginning of this week, and rebounded slightly during the session on Wednesday. . The geopolitical situation in the Middle East has temporarily eased and dovish statements from Federal Reserve officials have weakened the attractiveness of the dollar. Although Chairman Powell reiterated his position of "not rushing to cut interest rates", the market has digested expectations of the next two interest rate cuts in advance. Weaker consumer confidence data also further suppressed the bullish sentiment of the US dollar. Judging from the technical figure, the US dollar index is in a significant downward trend, continuing to decline from its high point of 107.66. It is currently operating between the middle and lower tracks of the Bollinger Band, and is in a volatile and blank pattern. The current price is close to the Bollinger band's lower track of 97.75. Analysts believe that if it falls below 97.60 support, it will open up further retracement space or test the 97 mark. In terms of resistance, the short term focuses on the 99.00 integer digit and Bollinger avaforexcn.com with the middle rail of 98.89, further 100.02 (Bolinger upper rail).

Euro: Euro/dollar rebounded Wednesday to its highest level since October 2021, above the 1.1650 level, driven by risk-bearing sentiment triggered by easing Iran-Israel conflict and widespread weakness in the U.S. dollar. Increasing speculation that the Fed will cut interest rates has pushed the U.S. dollar lower, allowing it to test its annual lows. Agenda ahead of the eurozone economic meeting, will include the GfK consumer confidence index in July and the speeches of European Central Bank officials Luis de Guindos and Isabel Schnabel in the U.S. , the timetable will release the final release of growth data for the first quarter of 2025. Investors are awaiting durable goods orders, as well as speeches from Cleveland Fed’s Beth Hammack, Governor Michael Barr and Minneapolis Fed’s Neel Kashkari. Technically, the euro/dollar remains bullish, refreshing to 1.1664 after breaking through the previous year-to-date (YTD) high of 1.1641, which will further upward in the near term. The Relative Strength Index (RSI) indicates that buyers’ momentum is growing.

GBP: As the dollar fluctuates across the board, GBP/USD rises more, firmly rising for the third consecutive day and hits its highest bid in four and a half years. Several central bank policymakers from the Bank of England (BoE) and the Federal Reserve (Fed) made appearances in the first half of the week, and the trend is expected to continue until the rest of the week. Technically, GBP/USD extended to a 41-month high on Wednesday, climbing above 1.3660 for the first time since January 2022. The pair is expected to close for the fifth month as the dollar is weakening across the entire dollar. As the GBP/USD price quickly runs past the uptrend line and the price moves well above the 200-day index moving average (EMA) near 1.3020, GBP bidders may be too close to the Sun. Technical oscillator indicators are fixed in the overbought zone, warning of a potential pullback.

Summary of news from the foreign exchange market

1. Trump considers appointing the next Federal Reserve Chairman in advance

Trump considers appointing the next Federal Reserve Chairman in advance

Trump considers appointing the next Federal Reserve Chairman in advance, and considers choosing a new Federal Reserve Chairman in September or October. Consider using Warsh and Hassett to replace current Chairman Powell, who will expire in mid-2026. Becent, Malpass and Waller are also avaforexcn.competitors for the Federal Reserve Chairman.

2. Trump says the United States and Iran will hold talks next week

U.S. President Trump held a press conference after attending the NATO summit in The Hague, Netherlands on the 25th, said the United States and Iran will hold talks next week and may sign an agreement. Trump said: "We will hold talks with Iran next week and may sign an agreement." But he also said that he believes the agreement is not "necessary", but the core demand of the United States is still not to allow Iran to possess nuclear weapons.

3. White House Chief Economist Miran: Trump's policy is expected to cut the deficit by as much as $11 trillion

The White House Chief Economist said that US President Trump's economic policy will cut the U.S. fiscal deficit by as much as $11 trillion in the next decade. This forecast is very different from what analysts think, who believe government debt will reach record highs in the avaforexcn.coming years. "We estimate that overall, the presidential policy portfolio will result in a deficit reduction of about $8.5 trillion to $11 trillion during the ten-year budget window," Stephen Miran, chairman of the White House Economic Advisory Council, told reporters on a conference call on Wednesday. "These numbers are huge."

4. Powell: The decline in government data availability is worrying

Feder Chairman Powell said Wednesday that budget cuts have limited some economic data from federal agencies, but have not yet affected the Federal Reserve's ability to fully measure the strength and direction of the U.S. economy, but the trend of falling data availability is worrying. When answering a question from a senator at the Senate Banking avaforexcn.committee meeting, Powell said: "(I) do not want anyone to think that the data has deteriorated to the point where we find it difficult to understand the economy. Although this is not perfect, its development direction is worrying."

5. Trump plans to create a "shadow Fed Chairman" first

According to the Wall Street Journal, Trump is increasingly dissatisfied with the Fed's attitude of keeping arguing about the issue of interest rate cuts, which prompts him to consider announcing his candidate for the next Fed chairman in advance. Currently, current Chairman Powell has 11 months left in office. According to people familiar with the matter, Trump has been considering whether to choose and announce Powell's successor in September or October this year in recent weeks. Trump's dissatisfaction with Powell may even prompt him to make the decision earlier this summer. The candidates Trump is considering include former Fed director Kevin Wash and National Economic avaforexcn.commission director Hassett. In addition, Treasury Secretary Bescent was also recommended as a potential candidate by his supporters. Other possible nominees include former World Bank President Malpass and current Fed Director Waller. Since the new Fed chairman will not officially take office until May next year, if the candidates are announced this summer or fall, it will be much earlier than the previous three to four-month handover period. This early announcement approach can allow nominees to influence market expectations of future interest rate paths in advance.

Institutional View

1. Barclays: The dollar has moderate selling pressure at the end of June. The euro rebound momentum is weak. Barclays' proprietary rebalancing model shows that there is moderate selling pressure on the dollar before the end of June, but the signal of the euro against the dollar remains weak, which means rebalancing.The support for the euro's sharp rebound is limited, and the flow of capital only provides marginal support. At the end of the quarter, the model showed that the dollar sells more pressure, but the euro-dollar signal was still weak, while the dollar-dollar sales signal was moderate. Investors may need to look for clearer dollar selling opportunities in other G10 pairs.

2. Bank of America analysts: Interest rate spread is no longer the main driver of the dollar's trend

Bank's Adarsh ​​Sinha said in a report that since Trump announced the full imposition of tariffs in April, interest rate spreads have no longer been an important driver of the dollar's trend. The decoupling of the US dollar from interest rate spread reflects the structural risk premium in the United States. The drivers include: U.S. tariffs push up inflation and weaken economic growth prospects, the U.S. economy has reached an exceptionalist peak, and increased risk of fiscal deficits. However, interest rate spreads may become a major factor in driving the dollar again, especially if the Fed implements more rate cuts ahead of schedule than expected, Sinha said.

3. Mitsubishi UF: The Bank of England may slow down the pace of quantitative tightening

Mitsubishi UF's Derek Halpenny said in a report that the Bank of England may announce in September that it will reduce its quantitative tightening plan and slow down the speed of reducing its holdings of bonds. These changes will take effect from October. Halpenny said Bank of England Governor Bailey on Tuesday suggested a possible adjustment to the central bank's quantitative tightening policy. "Governor Bailey's hints will certainly further increase expectations that the pace of quantitative tightening will slow down." He said that, under other conditions, this should be beneficial for UK government bonds.

The above content is all about "[Ihua Foreign Exchange Market Review]: The US dollar fell to a four-year low, waiting for US PCE data" and was carefully avaforexcn.compiled and edited by the Avatrade Foreign Exchange editor. I hope it will be helpful to your trading! Thanks for the support!

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