**US Dollar Forecast: Traders Eye 84% Rate Cut Odds After Powell; GBP/USD and EUR/USD Outlook**
*Based on insights from the original article by James Hyerczyk at FXEmpire.*
The US Dollar, an anchor currency in the global foreign exchange market, has been experiencing notable volatility as traders and institutional investors respond dynamically to new commentary from Federal Reserve Chair Jerome Powell. Recent remarks from Powell have prompted a shift in rate expectations, with market participants now assigning an 84% probability to an interest rate cut as early as September. This shifting backdrop is having a palpable impact on major currency pairs, especially GBP/USD and EUR/USD, which are both posting significant movements as the US Dollar’s outlook wavers.
This in-depth article examines the factors influencing the US Dollar’s trajectory, analyzes how Powell’s position is shaping rate expectations, and explores near-term technical and fundamental prospects for both the British Pound and the Euro against the Greenback.
## Powell’s Remarks Spark Dollar Reassessment
Federal Reserve Chair Jerome Powell’s latest statements have acted as a clear catalyst for traders’ recalibration of monetary policy expectations. Speaking in front of the U.S. Congress, Powell communicated a more cautious and balanced tone, emphasizing uncertainties around job gains and progress on inflation. Market participants interpreted these comments as signaling a readiness to cut rates should the labor market soften or inflation continue its favorable trend.
### Key Takeaways from Powell’s Testimony
– He acknowledged recent labor market cooling, with US job growth showing signs of moderating.
– Powell suggested that the risks between tightening too much versus too little have become more balanced.
– He reiterated a data-dependent approach, making upcoming economic reports pivotal for monetary policy action.
– Fed officials expect inflation to gradually return to the 2% target, reinforcing hope for easing measures.
Following these remarks, the implied probability of a September rate cut, based on fed funds futures, surged to 84%. This forward guidance has set a softer tone for the US Dollar, which in turn has provided tailwinds for rival currencies such as the Euro and British Pound.
## US Dollar Index Technical Overview
The US Dollar Index (DXY), which measures the currency’s value against a basket of major peers, responded to Powell’s dovish hints by continuing its recent downward correction. The index, having peaked above the 106.00 level in previous months, is now trading closer to the 105.00 mark as sellers gain traction.
### Technical Highlights
– The 50-day moving average has provided dynamic support, but increasing pressure is weighing on DXY.
– If the index breaches 104.80, a key psychological and technical support zone, further downside towards 104.00 looks likely.
– Resistance is seen in the 105.50 to 106.00 region, in line with prior swing highs.
## Upcoming US Data: Inflation and Employment in Focus
In the wake of Powell’s testimony, the market will sharpen its focus on two crucial data releases:
– **Consumer Price Index (CPI) for June:** Due this week, the CPI is expected to show a 0.1% month-on-month increase. The annual core inflation rate is forecast at 3.4%, still above the Fed’s 2% target.
– **Initial Jobless Claims:** The labor market’s health remains central to Fed decision-making. A noticeable rise in claims may reinforce dovish expectations.
These reports will likely act as the next significant catalysts for US Dollar traders. A soft inflation reading or labor market weakness could cement bets for a September rate cut, adding further downward pressure to the US Dollar.
## GBP/USD: Breaking Higher on Dollar Weakness and UK Political Clarity
The GBP/USD currency pair has seen a notable rebound in recent sessions, benefiting both from the softening US Dollar and newfound political stability in the United Kingdom. The landslide victory of the Labour Party in the UK general election has contributed to a more predictable policy backdrop, easing concerns about erratic fiscal changes
Read more on GBP/USD trading.