The US Dollar (USD) has experienced a softer tone this week, attributed to a scaling back of Federal Reserve (Fed) rate hike expectations following weaker US labor data and a mixed Producer Price Index (PPI) report, according to MUFG’s Lee Hardman. Short-term US yields are declining, which has created a headwind for the Dollar’s performance this month. Despite this, the Dollar index remains above its 200-day moving average, holding support at around 99.200 [1].
MUFG notes that the slowdown in private employment and wage growth, combined with limited evidence of higher energy prices affecting core inflation since the US-Iran conflict, has provided the Fed with more flexibility to keep rates on hold. As a result, the Fed is likely to place less emphasis on the upside inflation surprise in July [1]. The ongoing decline in short-term US rates has not yet been sufficient to trigger another significant leg lower for the Dollar after last month’s sell-off [1].
Meanwhile, the British Pound (GBP) has been locked in tight ranges against the US Dollar, with United Overseas Bank’s (UOB) Quek Ser Leang and Lee Sue Ann reporting that GBP/USD intraday moves have been confined between 1.3475 and 1.3515 as momentum fades. For the coming 1–3 weeks, UOB expects the Pound to trade in a broader 1.3440–1.3540 band, after a brief test of 1.3540. Longer-term signals point to continued range-trading, with supports at 1.3210/1.3160 and resistance at 1.3610/1.3655 [2].
UOB’s analysts note that while GBP briefly rose to 1.3540 two days ago, it quickly pulled back, and the 'strong support' level at 1.3460 has not been breached. Upward momentum has largely faded, reinforcing the expectation of range-bound trading for the time being [2].
CONCLUSION
The US Dollar is under pressure from falling yields and reduced Fed rate hike expectations, while the British Pound remains range-bound against the Dollar as momentum fades. Both currencies are expected to continue trading within established ranges in the near term, with no immediate catalysts for a breakout identified in the sources.