Hormuz Standoff and US CPI Data Keep Dollar Bid, G10 Rangebound
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With no deal on the Strait of Hormuz appearing imminent anytime soon, oil prices stay elevated and energy-driven inflation risk continues to hang over G10 currency pairs. The dollar draws support from both safe-haven demand and renewed Fed hike pricing, keeping major pairs pinned in tight ranges as participants hold back ahead of July US CPI, due today.
US Headline CPI is expected at 3.4% YoY with core seen at 2.5%. A reading at or above consensus on core could keep September Fed hike expectations firmly on the table, while a softer print could reinforce the post-NFP picture of a labour market that is losing momentum. Sterling holds near 1.3500 with Thursday's UK Q2 GDP adding a second layer of event risk to the week. The euro trades below 1.1550, capped by energy import costs and dollar firmness across the board.
GBP: Sterling Holds Ground, But the Burden of Proof Falls on Thursday
GBP/USD: 1.3510 | EUR/GBP: 0.8540
Sterling trades near 1.35 against the dollar on Wednesday after a flat close on Tuesday, as the dollar picks up ahead of July CPI data from the US. The pair's inability to push higher tells its own story.
What drives sterling here is sentiment, not data. Recent sterling price action has tracked shifts in risk sentiment and options positioning. The GBP/USD pair tracks risk reversals closely. Those reversals have faded their premium for downside protection over recent sessions. That points to a softer level of concern around sterling rather than a clear bullish signal.
The pound faces a quieter UK calendar today. Attention shifts to Thursday’s preliminary second-quarter GDP release. Consensus forecasts real UK GDP growth at 0.4% QoQ, down from 0.6% in Q1. The Bank of England (BoE) projects a softer 0.3%, pointing to lower household real income growth and tighter financial conditions as a drag on domestic demand. The BoE also forecasts consumption growth easing to 0.3% QoQ in Q2, against 0.6% in Q1.
The BoE held Bank Rate at 3.75% at its July meeting. It also reported inflation at 2.6% and warned that higher energy costs could push inflation higher later this year.
The risk for sterling is asymmetric. A stronger GDP print could support the case for a less dovish Bank of England path. A weaker reading could reinforce expectations for softer policy. That policy debate feeds directly into GBP/USD through the rate differential with the US.
Key Technical levels for the GBP/USD pair: Resistance sits at 1.3540, 1.3580 and Support sits at 1.3450, 1.3400.
EUR/GBP pushed above 0.8540 after the German data. The euro has recovered from session lows against sterling, yet the pair still trades below last week’s highs above 0.8580. The short-term structure therefore stays softer unless the cross clears that area.
Key Technical levels for the EUR/GBP pair: Resistance sits at 0.8560, 0.8580 and Support sits at 0.8500, 0.8480.
EUR: German Inflation Meets Oil Shock
EUR/USD: 1.1542 | EUR/GBP: 0.8540
The Euro edged up against Sterling to ~0.8540 following German inflation releases. The broader EUR/GBP short-term trend continues downward despite this lift. EUR/USD holds steady below mid-1.1500 levels, trading near 1.1534 in early European hours. European yield curves show temporary dips before finding solid structural floors.
Germany's Destatis confirmed on Wednesday that HICP inflation accelerated to 2.8% YoY in July, up from 2.4% in June. Energy inflation drove the surge, jumping to 7.3% in the twelve months to July from 2.7% in June.
Persistent energy-driven price pressure complicates the ECB's path. The eurozone relies on energy imports to meet its needs. Higher oil costs feed directly into cost bases across industry and households. Brent Crude reached levels above $88.00 on Wednesday, up roughly 13% from last week's highs.
Strait of Hormuz disruptions continue to restrict supply routes, with no deal appearing imminent to ease the blockade. Iran-backed Houthi militants attacked an Egyptian vessel in the Red Sea. US naval forces also fired on a Panama-flagged cargo ship attempting to break the blockade of Iranian ports. These developments cast further uncertainty over the timeline for supply normalisation and could keep oil-driven inflation in play for the months ahead.
EUR/USD trades around 1.1534 at the start of the European session, holding in familiar territory below 1.1550. That level has acted as a ceiling through the past week. Dollar dynamics are likely to dominate direction from here.
A softer US CPI print could ease pressure on the euro. A hotter-than-expected reading would likely reinforce dollar demand and push EUR/USD toward the lower end of its recent range.
Key Technical levels for the EUR/USD pair: Resistance sits at 1.1550, 1.1580 and Support sits at 1.1480, 1.1450.
USD: Dollar Holds Firm Ahead of Inflation Data
DXY: 99.90
The dollar index trades just below 100.00 on Wednesday, maintaining steady support on multi-day charts ahead of July CPI. Major currency pairs trade in established ranges while US Treasury yields protect key support zones. The tone across G10 is cautious. Broader equity futures show flat movement after Wall Street closed in red territory on Tuesday.
Core CPI consensus sits at 0.2% MoM. A print at 0.3% or above could put a September rate hike back on the table in a meaningful way and support the dollar. A softer reading would reinforce the post-NFP narrative that the Federal Reserve's (Fed) tightening cycle has run its course, for now. The revival of expectations for policy easing could weigh on the dollar. Either way, rate expectations look set to shift around the outcome on the headline number and the core detail.
Last week's payrolls complicated the picture first. July non-farm payrolls disappointed, with negative revisions subtracting 103,000 jobs from the May and June figures. The unemployment rate edged lower to 4.1%, but for the wrong reasons: labour force participation ticked down rather than employment ticking up. That distinction matters to the Fed. The labour market is softening, not stabilising.
The Fed currently targets a federal funds rate range of 3.50% to 3.75%. The FOMC maintained that range at its July meeting.
The subsequent rebound in crude, however, means energy could again place upward pressure on inflation in the months ahead. CME FedWatch data shows traders pricing a greater probability of at least one additional hike before year-end. That positioning provides a floor under the dollar even as growth signals soften.
The inflation release therefore has significance well beyond USD pairs. It can reshape rate expectations across the major currencies.
Other Currencies: Aussie Dollar, Kiwi, and Yen
AUD/USD: 0.7059 | NZD/USD: 0.5866 | USD/JPY: 159.38 | GBP/JPY: 215.27
The Australian dollar consolidates near 0.7050 for a third straight session following Tuesday's RBA decision. The RBA's hawkish stance continues to underpin the currency and limit downside. A firmer dollar keeps a ceiling on gains ahead of CPI. The pair holds just above the mid-0.7000 zone.
USD/JPY trades near 159.40 after sharp swings earlier in August. Japan and the US recently coordinated intervention to support the yen. That intervention adds a policy risk to the pair at elevated levels. A move above 160.00 would put the intervention threshold back into focus. Support sits near 158.00 and 157.00.
GBP/JPY trades around 215.27. Sterling strength has kept the cross elevated. Yen intervention risk creates a separate constraint.
Both Japanese and US authorities signalled readiness to act again. Fed Chair Kevin Warsh's comments, seen as supporting expectations for a possible September hike, have provided renewed dollar support and pushed the pair toward the upper end of its post-intervention range.
The New Zealand dollar holds near $0.5866 in the absence of domestic catalysts. July CPI from the United States could set the tone for NZD/USD through the remainder of the week.
Oil sets the inflation backdrop. US CPI sets the immediate rate test. Central-bank policy determines how each currency absorbs the shock. That could create a volatile session for sterling, the euro and the dollar pairs.
Current Rate Table
| Pair | Rate | Trend |
|---|---|---|
| GBP/USD | 1.3510 | Sideways / mild bearish bias |
| EUR/USD | 1.1542 | Sideways / mild bearish bias |
| EUR/GBP | 0.8540 | Bearish short-term |
| AUD/USD | 0.7059 | Range-bound / mild bullish bias |
| NZD/USD | 0.5866 | Neutral |
| USD/JPY | 159.38 | Volatile / intervention risk |
| GBP/JPY | 215.27 | Bullish medium-term |
Market lookahead:
Wed, Aug 12
- US Consumer price index (CPI) (Jul) inflation figures
Thurs, Aug 13
- UK Goods Trade Balance (Jun)
- UK GDP Q2
- Eurozone Industrial Production (Jun)
- US Producer Price Index (PPI) (Jul)
Fri, Aug 14
- Eurozone Trade Balance (Jun)
- Eurozone GDP Q2
- US Retail Sales (Jul)
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