Weekly currency forecast: US dollar to touch fresh lows on cooling inflation?

The US dollar plunged to multi-week lows last week as downbeat US data and dovish comments from Federal Reserve Chair Jerome Powell fuelled bets on a September interest rate cut.

Looking ahead, USD could face ongoing losses this week if an expected decline in US inflation further stokes Fed rate cut speculation.

Pound

The pound rose last week, as an upward revision to the British services PMI and a Labour landslide in the UK general election both supported Sterling.

This week, markets may closely watch the new Labour government’s first actions in power. Meanwhile, UK GDP data on Thursday could boost the pound. Forecasters expect the UK economy to have returned to growth in May.

Euro

While cooling Eurozone inflation put some pressure on the euro last week, EUR’s strong negative correlation to a falling US dollar helped the single currency rise against its weaker peers and hold steady elsewhere.

The euro could face volatility this week in the wake of the French election. Investors are relieved that the far-right National Rally (RN) party failed to win a majority. However, a hung parliament could lead to a protracted political deadlock in the Eurozone’s second-largest economy.

US dollar

The US dollar plummeted last week as activity in the US services and manufacturing sectors contracted. Meanwhile, Fed chief Jerome Powell said that the US seems to be on a ‘disinflationary path’, thereby fuelling rate cut bets.

Looking ahead, USD investors will be focusing on the US consumer price index for June, due out on Thursday. An expected cooldown in inflation could drive the US dollar even lower.

Australian dollar

After initially stumbling last week, the Australian dollar managed to regain ground thanks to stronger-than-expected Australian retail sales and an improving market mood.

Coming up, forecast declines in Australian business and consumer confidence could both pile pressure on AUD this week.