Dollar Firms as Fed Meeting Kicks Off, Sterling and Euro Ease

The dollar holds at a one-month high as the Fed's two-day meeting begins. Sterling softens to $1.32 near the beginning of July levels, the euro sits near its monthly lows against the dollar. The BoE decision follows on Thursday.

Monday's US durable goods orders missed forecasts at +0.3% against an expected +1.6%, though core capital goods shipments posted their strongest gain in four and a half years. US Consumer Confidence data is due today, another significant read before Wednesday's Fed rate decision and Fed Chair Warsh's press conference commentary. The Bank of England decision follows on Thursday with a new Monetary Policy Report.

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GBP: Britain's Strongest Data Week of the Summer and Sterling Still Fell

GBP/USD: 1.3304 | EUR/GBP: 0.8547

The British Pound slipped below 1.3300 after a brief recovery lost momentum, while the dollar held firm ahead of this week's Federal Reserve (Fed) decision. The GBP/USD pair traded around 1.3290 during Tuesday's Asian session, before testing the 1.33 level; with traders favouring the dollar as they waited for fresh guidance from Fed Chair Kevin Warsh. The EUR/GBP pair also found support near 0.8550 as Sterling gave back recent gains.

The move may look surprising after Britain's strongest run of economic data in months. Retail sales rose 1% in June against expectations for a small decline, helped by warmer weather and stronger consumer spending. UK consumer confidence climbed to a six-month-high, while preliminary business activity surveys showed the private sector returned to expansion ahead of forecasts. UK’s June inflation also cooled to 2.6% YoY, with services inflation easing to 3.6%.

Normally, stronger growth coupled with easing inflation would support Sterling. This time, the opposite happened.

The recent rally appears to have relied more on interest-rate expectations than economic momentum. Higher energy prices had encouraged traders to price in further Bank of England (BoE) tightening. Brent Crude then dropped sharply after tensions between Washington and Tehran eased. That move reduced inflation concerns, pushed UK 10-year gilt yields back towards 4.97% and prompted traders to trim expectations for further BoE rate increases.

Attention has now shifted to Thursday's Bank of England (BoE) decision. Policymakers widely expect the Bank Rate to stay unchanged at 3.75%. Recent inflation data gives the Monetary Policy Committee (MPC) more room to pause, while softer energy prices reduce pressure to tighten policy again in the near term.

Fiscal policy also sits in the background. The UK's latest tariff arrangements with the United States have done little to change the broader trade outlook, while attention continues to build ahead of October's Budget. Investors await clearer signals on government spending, borrowing and business costs before assigning fresh support to Sterling.

Before the BoE takes centre stage, the Federal Reserve (Fed) moves first with its rate decision arriving on Wednesday, followed by the BoE decision on Thursday. That sequencing matters for the GBP/USD pair. Even if UK fundamentals improve, the pair could continue to take direction from the dollar if the Fed reinforces its inflation stance or signals that interest rates will stay higher for longer.

For now, the sterling has stronger domestic data but fewer policy tailwinds. The pound may continue to react more to shifts in global interest-rate expectations than to encouraging UK data alone, particularly while central bank guidance could set the tone for the major currency pairs.

Key Technical levels for the GBP/USD pair: Resistance sits at 1.3350, 1.3300 and Support sits at 1.3250, 1.3195, 1.3150

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EUR: Euro Consolidates Near Monthly Low Ahead of the Fed

EUR/USD: 1.1373 | EUR/GBP: 0.8547

The Euro stayed close to its monthly low against the dollar but held above the 1.1350 area as investors traded cautiously ahead of the Fed's policy decision. The EUR/USD pair hovered in the mid-1.1300s after recent losses, while the dollar struggled to extend its advance before Wednesday's rate decision announcement. The EUR/GBP pair edged higher near 0.8550 as Sterling softened, giving the single currency modest support despite its own cautious outlook.

The immediate driver sits outside the Eurozone. Traders continue to wait for fresh signals from the Fed, with interest rates widely expected to stay unchanged. The focus now shifts to the policy statement and Chair Kevin Warsh's press conference for clues on inflation, growth and the path of US interest rates. Those signals could shape the dollar's next move and set the direction for EUR/USD through the rest of the week.

The Euro also faces its own test. Germany and the wider Eurozone will publish preliminary July HICP inflation figures later this week. Those releases could reshape expectations for the European Central Bank's (ECB) next move after inflation showed signs of proving more persistent than policymakers had hoped.

ECB Governing Council member Peter Kazimir reinforced that message by arguing at least one further interest-rate increase may still be necessary to contain inflation pressures. His comments reminded investors that the ECB's inflation battle may not have finished, even as growth across parts of the bloc continues to slow.

Lower oil prices have complicated that outlook. Easing tensions between Washington and Tehran pushed crude prices sharply lower, reducing short-term inflation pressure across Europe. That development offers households and businesses some relief, but it also weakens one of the arguments for further monetary tightening if energy prices continue to fall.

The balance between softer inflation and stubborn underlying price pressures leaves the ECB with little room for certainty. That uncertainty continues to limit demand for the Euro while investors wait for stronger evidence on the inflation path and ECB guidance.

For the EUR/USD pair, policy divergence still carries the greatest influence in the near term. If the Fed maintains a firm inflation stance while the ECB edges closer to the end of its tightening cycle, interest-rate differentials could continue to favour the dollar. Any signs that Eurozone inflation stays elevated, however, could revive expectations for further ECB action and offer the single currency fresh support.

For now, the Euro trades between competing forces. Domestic inflation data could shape the ECB outlook, while the Fed continues to dictate the broader direction for the pair. Until one side delivers a clearer policy signal, the EUR/USD pair may continue to favour consolidation over conviction.

Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8560, 0.8540, and Support sits at 0.8510, 0.8480, 0.8450

Key Technical levels for the EUR/USD pair: Resistance sits at 1.1430, 1.1380, 1.1362 and Support sits at 1.1354, 1.1300

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USD: Dollar Holds Firm as Fed Takes Centre Stage

DXY: 101.52

The dollar stayed close to its monthly high as traders prepared for the Fed's policy decision. The US Dollar Index (DXY) traded near 101.52 after steady demand lifted the Greenback across the major currencies. Price action reflected caution rather than conviction, with investors waiting for fresh guidance before committing to the next move.

Market consensus suggests the Fed is widely expected to leave interest rates unchanged at 3.50% to 3.75%. That outcome alone is unlikely to surprise. The bigger test for the dollar comes from the policy statement and Fed Chair Kevin Warsh's press conference, where markets will look for any change in the Fed's assessment of inflation and economic conditions.

Warsh has already signalled that forward guidance has little value in the current policy environment. That shifts even more attention to his language around inflation risks, labour conditions and the balance between holding policy steady and tightening further if price pressures persist.

Current pricing still points to a strong chance of another rate increase in September. The CME FedWatch Tool places the probability above ~80%, showing that markets continue to expect the Fed to keep inflation under control before considering any shift in policy. Those expectations have helped support the dollar despite a softer run of inflation data.

Political headlines added another layer to sentiment. President Donald Trump argued that inflation has eased, costs continue to fall, and interest rates should move lower once geopolitical tensions fade. He also expressed confidence in Chair Kevin Warsh while repeating his long-standing call for lower borrowing costs.

Those remarks contrasted with the Fed's focus on inflation rather than political pressure. Unless policymakers acknowledge a clear improvement in price stability, markets are unlikely to assume rate cuts are close.

Geopolitical developments in the Middle East also influenced the dollar. Media reports of improving dialogue between Washington and Tehran helped push oil prices lower and eased short-term inflation concerns. However, Tehran rejected reports of direct negotiations with the United States, stating that discussions continue only through Oman. Even with those conflicting messages, lower energy prices reduced immediate inflation expectations without changing the Fed's broader policy outlook.

That combination leaves the dollar in a familiar position. Softer inflation supports hopes that price pressures continue to ease, while resilient economic data and expectations for another rate increase keep US yields relatively attractive against many of their global peers.

For now, the Fed continues to set the tone across the major currency pairs. Traders may react first to changes in outlook rather than the interest-rate decision itself, especially if policymakers reshape expectations for September and beyond. Until then, the dollar draws support from policy expectations and geopolitical developments more than fresh economic data.

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Current Rate Table

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Market lookahead:

Tues, July 28

• US Consumer Confidence (Jul)

Wed, July 29

• Fed Interest rate decision, FOMC Conference

Thurs, July 30

• Germany’s GDP Q2
• Eurozone Consumer Confidence (Jul)
• Eurozone GDP Q2
• BoE Interest Rate Decision, Monetary Policy meeting, BoE Governor Bailey Speech
• Germany’s Consumer Price Index (Jul)
• US Core Personal Consumer Price Index (Jun)
• US GDP Annualised Q2

Fri, July 31

• Eurozone Core Harmonized Index of Consumer Prices (HICP) Inflation figures (Jul)

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