**U.S. Dollar Pulls Back from Weekly Highs: Analysis for EUR/USD, GBP/USD, USD/CAD, and USD/JPY**
*Adapted and expanded from the original article by James Hyerczyk, FX Empire*
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The U.S. dollar experienced a notable pullback on Monday, easing from recent highs reached during the previous week. Investors re-evaluated their expectations for Federal Reserve interest rate policy amid new labor market data, leading to significant movements across major currency pairs. Below, we provide a comprehensive analysis of recent dollar movements and the outlook for EUR/USD, GBP/USD, USD/CAD, and USD/JPY as the week unfolds.
## Dollar Index Retreats: Context and Catalysts
The U.S. Dollar Index (DXY), which measures the dollar’s strength against a basket of major world currencies, slipped from its highest closing level since early May after surging nearly 1 percent last week. This retreat came after Friday’s release of the U.S. Non-Farm Payrolls (NFP) report for May, which surpassed expectations and triggered a round of dollar buying as traders dialed back hopes for early rate cuts by the Federal Reserve.
### Key Catalysts Moving the Dollar
– **Strong U.S. labor market data:** The NFP report showed the U.S. economy added more jobs than expected, reinforcing the notion that the Fed can take its time before adjusting benchmark rates.
– **Shifting rate-cut expectations:** Traders pulled back on bets for a rate cut in September, reducing the likelihood of any immediate monetary easing from the central bank.
– **Upcoming Federal Reserve rate decision:** With the Federal Open Market Committee (FOMC) meeting scheduled for June 12, market participants are keenly focused on potential changes in policy and updated economic projections, including the so-called Summary of Economic Projections or “dot plot.”
## EUR/USD: Euro Rebounds Off Recent Lows
EUR/USD managed to recover from a one-month low near 1.08, rebounding in the wake of the dollar’s pullback and as new developments shaped euro sentiment.
### Recent Price Action
– The euro tumbled last week after the European Central Bank (ECB) delivered a widely anticipated rate cut, dropping the main rate to 3.75 percent from 4 percent.
– ECB President Christine Lagarde suggested the decision did not necessarily mark the start of an extensive run of easing, but markets remain unconvinced about further rate moves this year.
– As of Monday afternoon, EUR/USD was trading around 1.0780-1.0800, having rebounded from the Friday lows.
### Factors to Watch for EUR/USD
– **Eurozone data:** Investors are looking for fresh cues from the region amid low inflation and signs of economic stabilization.
– **Political uncertainty:** Snap parliamentary elections called in France after right-wing gains in the European elections add another layer of uncertainty for the euro.
– **Dollar drivers:** U.S. inflation data and the Fed meeting midweek remain pivotal for further moves.
### Technical Overview
– Immediate resistance lies at the 1.0820 area, aligning with the 50-day simple moving average.
– Support sits around 1.0720-1.0740, which provided a floor in recent sessions.
– For sustained upside, EUR/USD needs to break decisively above 1.0850.
## GBP/USD: Sterling’s Resilience Amid Support from Economic Data
GBP/USD also staged a modest rebound on Monday, buoyed by a slightly softer greenback and persistent optimism over the UK’s growth outlook.
### Market Context
– The British pound dropped last week under dollar strength and ahead of the upcoming UK general election.
– Economic data, including robust retail spending, have helped to stabilize sterling.
### Factors Impacting GBP/USD
– **Monetary policy expectations:** The Bank of England is perceived as being less dovish than the ECB, supporting sterling’s relative outperformance.
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