Forex Today: The Fed-Inspired Decline in the Dollar Persists Before Important Data Releases

Jul 28, 2022

Late on Wednesday, intense selling pressure was on the dollar, and the US Dollar Index (DXY) completely undid Tuesday's gains. Early Thursday, the DXY remains weak and trades below 106.50 as investors reevaluate the Federal Reserve's policy outlook. The US Bureau of Economic Analysis will present its preliminary estimate of GDP growth for the second quarter later in the session. Weekly Initial Jobless Claims data from the US Department of Labor will also be scrutinized for potential new dynamism. German inflation statistics and eurozone business confidence data will be on the European agenda.

The Fed increased the policy rate by 75 basis points on Wednesday, bringing it to a range of 2.25 to 2.5 percent. Chairman Jerome Powell announced during the press conference that they would no longer be offering rate forecasts in the future. Powell stated that about the outlook for policy, "our thinking is that we aim to get to a fairly restrictive level by the end of this year." That translates to 3 to 3.5 percent.

On Wednesday, the S&P 500 Index increased by 2.6 percent, while the Nasdaq Composite Index increased by more than 4 percent. Despite this, US stock index futures are down during the European morning, indicating that investors are becoming more cautious before the release of the US GDP report.

A technical recession would the US escape, according to the US GDP forecast?

In the early hours of the European session on Thursday, the EUR/USD rose to a daily high of 1.0235. The dollar was able to contain its losses thanks to the unfavorable move in risk sentiment, but the pair fell again below 1.0200.

The GBP/USD exchange rate reached a high of 1.2188, its highest level in four weeks, but it soon entered a stabilization phase. In the morning in Europe, the pair trades in a very narrow channel above 1.2170.

On Wednesday, gold took advantage of declining yields and increased to a two-week high above $1,740. The benchmark 10-year US Treasury bond yield has risen 1% on Thursday, preventing additional upward momentum for XAU/USD.

The USD/JPY pair closed in the red on Wednesday and is moving near 135.50 on Thursday. Market players will eagerly watch Japan's Tokyo CPI, Industrial Production, and Unemployment data on Friday.

On Wednesday, bitcoin increased by 8%, although it lost near $23,000. Earlier in the day, at $1,676, Ethereum reached its highest point since June 10 before falling to around $1,600.