**U.S. Dollar Weakens as Market Bets on Dovish Fed: EUR/USD, GBP/USD, USD/CAD, and USD/JPY Analysis**
*Author: Vladimir Zernov, FXEmpire | Expanded and Revised for Length and Additional Insight*
The U.S. dollar retreated in recent trading sessions, influenced by growing market sentiment that the Federal Reserve may take a more dovish approach to interest rates in the months ahead. As traders continue to absorb mixed economic data and shifting expectations around monetary policy, the greenback has lost some of its momentum, giving space for rival currencies like the euro, British pound, Canadian dollar, and Japanese yen to strengthen.
This article provides a comprehensive breakdown of the latest price action in major currency pairs: EUR/USD, GBP/USD, USD/CAD, and USD/JPY, while also integrating broader macroeconomic themes and recent developments from the Federal Reserve and global central banks.
### Fed Sentiment Shifts Toward Dovish Stance
The primary driver of recent dollar weakness stems from increasing speculation that the Federal Reserve may begin cutting interest rates sooner than previously anticipated. Several overlapping factors have contributed to this view:
– **Inflation Cooling:** While inflation remains above the Fed’s 2% target, recent Consumer Price Index (CPI) and Producer Price Index (PPI) readings suggest a gradual decline in inflationary pressures.
– **Labor Market Softening:** Job creation has moderated, with May’s non-farm payrolls showing signs of labor market cooling, weakening the argument for persistently high rates.
– **FOMC Meeting Expectations:** Upcoming statements from the Federal Open Market Committee (FOMC) will be closely watched. Traders now predict fewer rate hikes in 2024 compared to earlier expectations. According to CME’s FedWatch Tool, the probability of at least one rate cut by September 2024 has climbed above 60%.
These developments have triggered a pullback in U.S. Treasury yields, dampening demand for the dollar.
### EUR/USD: Bulls Gain Momentum as Dollar Softens
The EUR/USD pair has taken advantage of dollar weakness, pushing steadily higher over the past two sessions.
Current Technical Setup:
– The euro has established support above **1.0785**, a level that provided resistance during May’s consolidation phase.
– Immediate resistance is seen near **1.0850**, a level aligned with the 50-day moving average (SMA).
– A break above 1.0850 could open the path to test the next resistance near **1.0900**, which serves as a psychological barrier and has previously capped rallies.
Macroeconomic View:
– Eurozone inflation moderated to **2.6% YoY in May**, from 2.9% in April. This reinforces expectations that the European Central Bank (ECB) might retain some tightening bias, although at a slower pace than earlier this year.
– European Central Bank policymakers are expected to be cautious. Markets widely expect a rate cut around September 2024, which could weigh on the euro in the medium term.
Outlook:
– If dollar sentiment continues to deteriorate and dovish trends accelerate, EUR/USD may benefit from short-term bullish momentum.
– Near-term trend remains upward as long as support around 1.0785 holds.
### GBP/USD: Riding the Wave of Political and Monetary Speculation
GBP/USD continues its ascent as traders react not only to dollar weakness but also to a shift in sentiment regarding UK economic resilience and political clarity ahead of the July general elections.
Technical Picture:
– The cable has cleared initial resistance near **1.2700**, now trading near a local high around **1.2750**.
– Further upward movement could challenge **1.2800** and then **1.2850**, both of which served as resistance in previous months.
– Support rests at 1.2670, followed by a firmer floor near 1.2600.
Fundamental Drivers:
– The UK’s
Read more on USD/CAD trading.