Sterling was largely unchanged on Tuesday while the euro drifted lower, as a lack of major U.S. economic releases and cautious remarks from Federal Reserve officials kept the dollar contained ahead of Wednesday's release of the FOMC minutes.
GBP/USD slipped 0.04% to $1.3382, remaining just beneath Monday's move toward $1.34 and close to its strongest level since mid-June. EUR/USD eased 0.10% to $1.1430 as of 06:30 ET (10:30 GMT).
Analysts at ING emphasised that, in the current environment, there is little incentive for investors to sell the dollar. "We argued yesterday that markets probably require a convincing narrative to short the high-yielding dollar in such a favourable environment for carry," said Francesco Pesole, FX strategist at ING. He added that unless the minutes deliver an unexpectedly dovish surprise - which ING does not expect - that narrative is unlikely to appear this week, and the DXY index could remain closer to 101.0 than 100.0.
Fed Governor Christopher Waller told audiences on Monday that risks to the economic outlook have "flipped on the hawkish side," and he offered tentative criticism of a proposal by fellow policymaker Kevin Warsh to ban forward guidance. ING described Waller's remarks as offering little new information for markets.
With traders looking for fresh guidance on the U.S. rate path in the upcoming FOMC minutes, the U.S. data calendar on Tuesday was light, keeping intraday volatility limited. The primary domestic release of note was Lloyds' house price index, which showed average prices rose 0.2% in June, ending three months of weakness, and nudging annual growth up to 0.6% from 0.5%.
Amanda Bryden, head of mortgages at Lloyds, commented that mortgage rates have eased from recent highs, which may encourage some prospective buyers, but she warned that affordability remains stretched.
For the euro, market attention was drawn to a Paris court ruling concerning Marine Le Pen's eligibility to stand for office. ING judged the ruling to pose limited market risk. "We doubt this event has great market potential," Pesole said, arguing that investors have largely priced in a National Rally victory under either Marine Le Pen or Jordan Bardella, and that fiscal policy would be expected to remain disciplined under either leader.
ING also highlighted the technical risk of EUR/USD retesting 1.140 in the near term and said low volatility is likely to continue unless stronger-than-expected economic data or central bank surprises emerge. The bank noted that a meaningful change to its dollar outlook would likely require either a dovish surprise in Wednesday's FOMC minutes or a notable shift in the carry backdrop. Absent such developments, ING expects the dollar index to remain nearer 101.0, and it sees sterling's further gains as more dependent on movements in the gilt market than on a change in U.S. rate expectations.
In sum, currency markets remained relatively subdued on Tuesday, with sterling close to recent multi-week highs, the euro modestly softer, and the dollar holding a narrow range as participants awaited the FOMC minutes for clearer guidance on the future path of U.S. interest rates.
Market data referenced in this article
- GBP/USD: down 0.04% to $1.3382
- EUR/USD: down 0.10% to $1.1430 (06:30 ET / 10:30 GMT)
- Lloyds house price index: monthly +0.2% in June, annual growth 0.6% from 0.5%
- DXY: expected to remain nearer 101.0 absent surprises