Dollar weakens modestly after the Fed, focus turns to ECB and US data

Market participants will continue to digest the FOMC meeting during the Asian session. Economic data due On Thursday includes the Export and Import Price Index in Australia. Later in the day, the ECB is expected to raise interest rates by 25 basis points. Additionally, key economic data from the US is due, including the preliminary Q2 GDP growth.

Here is what you need to know on Thursday, July 27:

The Federal Reserve (Fed) raised its key interest rates by 25 basis points to 5.25%-5.5%, as expected. The rate reached levels not seen in more than 11 years. The decision and the statement offered no surprises. Chair Powell mentioned that the June inflation Consumer Price Index was welcomed but “was only one month’s report.” He added that if data suggests more hikes are needed, “that is the judgment we’ll make.”

After the Fed and Powell delivered, the US dollar weakened but only modestly, and US yields pulled back moderately. The DXY dropped 0.25%, ending around 101.00. The US 10-year Treasury yield settled around 3.87%, and the 2-year at 4.85%. The focus will turn to economic data, starting on Thursday with the preliminary Q2 GDP data. The growth report will also include inflation indicators. At the same time, the weekly Jobless Claims and Durable Goods Orders are due.

EUR/USD rose after falling during six consecutive days, supported by a weaker US Dollar. The pair held above the 20-day Simple Moving Average (SMA), but found resistance at 1.1100. On Thursday, the European Central Bank (ECB) will announce its decision on monetary policy. A rate hike is expected, and the focus will be on the language.

Analysts at Nordea:

A 25bp rate hike at the ECB July meeting looks like a done deal, so all focus is on what the central bank will signal about the future. Will the ECB be in a pure data-dependent mode, or does it want to indicate that further hiking looks likely?

ECB Preview: Forecasts from 12 major banks, the final 25 bps?

GBP/USD rose for the second day in a row, holding firm above 1.2900, while EUR/GBP remains subdued, hovering around 0.8560. USD/CHF lost ground for the second day, reaching weekly lows under 0.8600.

Commerzbank on CHF

Price pressure in Switzerland has eased somewhat recently. Nevertheless, the SNB remains concerned about second-round effects. It is therefore likely to remain hawkish for the time being, favouring a strong franc. We have therefore adjusted our forecast slightly. However, we still see a moderately weaker franc in the course of the year since price pressure should ease and the SNB should increasingly tolerate a weaker franc.

AUD/USD finished lower but remained above the 20-day SMA and above 0.6730. The upside faces resistance below 0.6800. The Aussie weakened during the Asian session following softer-than-expected inflation data from Australia. On Friday, the Producer Price Index is due.

NZD/USD remained flat around 0.6215 as it continues to move sideways. The pair hit multi-day highs at 0.6235 and then pulled back. USD/CAD remains in a range below the 20-day SMA at 1.3230 and 1.3150.

Crude oil pulled back from monthly highs, falling less than 1%, with the WTI ending around $79.00. Gold rose after the FOMC meeting but failed to consolidate above $1,975. Silver also climbed but pulled back after testing levels above $25.00.