The European Central Bank's primary focus remains on inflation control, with the task becoming somewhat easier as oil prices recede, according to Ante Žigman, a member of the ECB's Governing Council and Governor of the Croatian National Bank. In his first public address since assuming the role this month, Žigman stated on Tuesday that the ECB has demonstrated its readiness to act by raising borrowing costs. These hikes were implemented despite concerns they would add to the headwinds facing the region's struggling economy. "We must focus on price stability," Žigman told Croatian television. "Geopolitical developments related to the opening of the Strait of Hormuz have led to a drop in oil prices. This will undoubtedly have a positive impact on inflation."
In a separate development, U.S. Treasury Secretary Scott Bessent remarked on Wednesday that a Federal Reserve interest rate cut does not necessarily lead to a weaker dollar, suggesting a strong dollar is possible even with rate reductions. Bessent pointed out that if the Fed cuts rates because inflation is falling back to target while the economy remains robust, capital inflows could continue, thereby supporting the dollar. The outcome, he noted, depends entirely on the reason behind the Fed's decision. During the interview, Bessent expressed optimism that the U.S. could return to a 3% growth trajectory this year. He expects inflation to fall back to the Fed's target as tensions with Iran ease and suggested artificial intelligence has the potential to at least double productivity growth. He also defended the administration's ongoing efforts regarding an Iran agreement and its approach to handling frozen assets.
Key data releases to watch today include Germany's July GfK Consumer Confidence Index, the U.S. May annual PCE Price Index, the final reading for U.S. Q1 annualized real GDP, the U.S. preliminary Durable Goods Orders for April, and the U.S. weekly Initial Jobless Claims for the period ending June 20th.
U.S. Dollar Index (DXY)
The U.S. Dollar Index moved higher in choppy trading yesterday, reaching a fresh 13-month peak, and is currently trading around 101.50. Continued market expectations for Federal Reserve interest rate hikes provided significant underlying support. Additionally, hawkish commentary from Fed officials further bolstered the index. However, the easing of tensions in the Middle East, which dampened safe-haven demand for the dollar, limited its upside. Resistance is now eyed near the 102.00 level, with support around 101.00.
EUR/USD
The Euro declined against the U.S. Dollar yesterday, hitting a new 13-month low, and is currently trading near 1.1360. The primary driver was the continued ascent of the U.S. Dollar Index, fueled by hawkish Fed rhetoric and heightened expectations for U.S. rate hikes. The pair's losses were somewhat contained by a general easing in market risk aversion and hawkish remarks from European Central Bank officials. Resistance is seen around 1.1450, with support near 1.1250.
GBP/USD
The British Pound fell against the U.S. Dollar yesterday, touching a fresh seven-month low, with the pair currently trading around 1.3170. The main pressure came from the U.S. Dollar Index's sustained climb to a 13-month high, supported by factors including reinforced expectations for Fed tightening. Furthermore, ongoing concerns regarding political uncertainty in the UK continued to weigh on the currency. Resistance is anticipated near 1.3250, while support lies around the 1.3100 level.
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