US dollar fluctuates on Fed rate cut bets

Trade in the US dollar was uneven on Monday as events over the weekend and Federal Reserve interest rate speculation infused volatility into the currency.

Meanwhile, the pound is mixed so far this morning, with GBP/EUR flat at €1.1899 and GBP/USD subdued at $1.2955. GBP/CAD is rangebound CA$1.7738, while GBP/AUD and GBP/NZD tick up to AU$1.9220 and NZ$2.1386, respectively.

Coming up, will a deterioration in German economic sentiment drag on the euro this morning?

What’s been happening?

The US dollar traded erratically at the start of this week. The assassination attempt on former President Donald Trump and weaker-than-expected Chinese GDP triggered some initial volatility.

USD exchange rates began to come under pressure through the afternoon as markets continued to price in a September interest rate cut from the Federal Reserve.

However, the ‘greenback’ then bounced back at the end of the European trading session, following remarks from Fed Chair Jerome Powell, in which he remained coy regarding potential rate cuts.

The euro, meanwhile, faced pressure on Monday following the publication of the Eurozone’s latest industrial production figures.

While May’s release beat expectations, it still reported a contraction in factory output in the bloc, which softened EUR sentiment.

Finally, the pound was left mostly rangebound through yesterday’s session following comments from Bank of England (BoE) policymaker Swati Dhingra. Dhingra claimed that ‘now is the time’ to start cutting interest rates.

What’s coming up?

In the spotlight this morning will be the publication of Germany’s latest ZEW economic sentiment index.

Analysts predict morale in the Eurozone’s largest economy will have deteriorated this month, which could act as a headwind for the euro today.

On the other hand, sentiment in Germany has consistently outperformed expectations this year, with the single currency likely to strengthen if this trend persists.

For USD investors the focus will be on the latest US retail sales figures. Economists forecast sales growth stalled in June. Will this further stoke Fed rate cut bets and pull the US dollar lower this afternoon?

Meanwhile, movement in the pound may be limited today as GBP investors brace for some high-impact UK economic releases and the King’s Speech in the latter half of the week.