**Market Summary: Forex Weekly Wrap and Key Drivers Ahead**
*Based on the article by Kitco News, as published via Mitrade.*
—
Foreign exchange market participants closed last week with mostly modest volatility after a flurry of economic data, central bank meetings, and continued geopolitical risks. While the dollar index (DXY) ended unchanged for the week near 104.24, other major pairs registered only minor fluctuations. Heading into the new week, traders are weighing mixed signals: resilient US data versus overseas economic underperformance, with the Federal Reserve and other central bank expectations in sharp focus.
## Major Macroeconomic Developments Last Week
**1. Federal Reserve Commentary & US Data**
– The US labor market and inflation reports came in broadly as expected.
– May headline CPI dropped to 3.3 percent year-over-year, with core CPI also moderating, fueling optimism about inflation cooling.
– The FOMC meeting resulted in no change to interest rates, but the “dot plot” of Fed forecasts projected only one cut in 2024, down from three in March.
– Fed Chair Jerome Powell reiterated a data-dependent stance, noting modest progress against inflation but also concern over persistent price pressures, especially in services.
**2. European Central Bank & UK Developments**
– The ECB left rates unchanged after cutting in June, signaling a cautious approach to further easing amid sticky services inflation and uncertain wage pressures.
– The British pound outperformed slightly after UK GDP and related data pointed to resilience, reducing the likelihood of imminent BOE rate cuts.
**3. Asian Market Updates**
– The Japanese yen hit fresh multi-decade lows, approaching the threshold where expectations of official intervention rise.
– BoJ left policy unchanged but hinted at further normalization steps later this year, possibly including a rate hike and reducing massive JGB purchases.
– Chinese yuan remained under pressure as economic data showed sluggishness, leading to expectations of more stimulus.
## Weekly Forex Performance
– The *US Dollar Index* closed at 104.24, flat for the week.
– *EUR/USD* saw sideways trading, ending near 1.0700.
– *GBP/USD* touched fresh multi-week highs above 1.2800 before trimming gains.
– *USD/JPY* pushed above 159, flirting with levels last seen in 1990 before intervening action was threatened.
– *AUD/USD* and *NZD/USD* drifted, with both currencies pressured by lower China-related optimism.
## Central Bank Divergence Theme
An overarching theme remains central bank divergence. As US macro data surprises to the upside, bets have cooled on early and frequent rate cuts by the Fed. In contrast, signs of stagnation in the eurozone and China have pulled the ECB, PBoC, and others in a dovish direction. This divergence helps underpin the dollar while weighing on growth-sensitive and high-yield currencies.
### Fed Outlook
Market pricing now favors just one or two Fed cuts in 2024. The critical debates are:
– If recent downward trends in inflation, particularly services, prove sustainable
– Whether jobs growth slows in H2 as earlier rate hikes percolate through the economy
– The risk of upside shocks to CPI from commodities, housing, or wage growth
### BoJ and Yen Watch
The yen’s persistent weakness and slow BoJ tightening risks further pressure, but policymakers are growing more vocal about taking steps to address currency volatility. Any surprise BoJ move or confirmed intervention would inject substantial volatility.
## Key Events and Data in the Week Ahead
Traders are watching for confirmation of June’s data trends and new developments in Fed, ECB, and BoJ communications. The global macro focus will primarily be on:
**United States:**
– *May Retail Sales*: A test for consumer resilience after some mixed spending figures
– *Industrial production, housing starts, and building permits* will inform on real economy momentum
– *Speeches from various Fed policymakers* will
Read more on GBP/USD trading.