In the latest FX Daily report, attention shifts to US macroeconomic factors as geopolitical risks lessen. Following the stability of the Israeli-Iranian ceasefire, markets are now optimistic, evident in the rapid decline of the oil premium.
Consequently, the dollar’s potential for further declines might hinge on US-specific developments such as economic data, Federal Reserve decisions, and fiscal matters. Recent data included a surprising drop in consumer confidence, which negatively impacts the dollar.
However, Federal Reserve Chair Jerome Powell’s testimony introduced nuanced dynamics. While he maintained a cautious stance on easing—rebuffing pressures from Trump—he also appeared slightly more open to discussing future rate cuts.
Markets reacted positively, interpreting his comments as dovish. It’s essential to note that if the Fed signals a more abrupt dovish shift, it could create downward pressure on the dollar, but this scenario seems unlikely as it may also strain Treasury performance.
Today, the second part of Powell’s testimony is anticipated, with housing data for May on the agenda. While there may be some stabilization in the dollar, the overall outlook remains tilted downward.
Turning to the EUR/USD, the pair’s rally has faced resistance in the 1.160-1.165 range. For a decisive break above this level, markets may require stronger macroeconomic signals, particularly from the US.
European sentiment may be influenced by developments from the NATO summit, especially concerning US safety commitments amidst regional defense spending debates. In Central and Eastern Europe (CEE), local currencies gained alongside the ceasefire announcement.
The Czech National Bank (CNB) is expected to maintain its interest rate at 3.50% today, with hawkish undertones, given inflation concerns. Recent signals suggest that further rate cuts may be off the table for this year.
Overall, there is a cautious bullish outlook for the region’s currencies.