Dollar bulls retain control of the situation, playing a strong report on the US labor market published last Friday. Greenback continues to strengthen relative to its main competitors. The USD index is still trading near three-week highs.
Now, traders are waiting for the speech of Federal Reserve Chairman (FED) Jerome Powell in Congress. On Wednesday and Thursday, July 10 and 11, the head of the Fed will submit a semi-annual report on monetary policy in the Senate and the House of Representatives. Undoubtedly, this is one of the key events of the current week, from which, the demand for the American currency will probably depend not only this week but also until the end of the month (when the next meeting of the American Central Bank will be held).
The main question that investors will look for in the speeches of Jerome Powell is whether the Fed should lower interest rates in July in light of the latest report on the US labor market.
At the end of the June meeting, the FOMC members made it clear that the prospects for easing the monetary rate of the regulator will depend on the incoming data. Last month, the number of jobs in the US economy increased but wage growth slowed, as well as the business activity in the manufacturing sector and the service sector declined. On Thursday, there will be data on consumer prices, which are also of great importance for the Fed. However, they are likely to be on the table even before a speech to Congress.
Considering the tone of the regulator's statements from the last meeting and the amount of time that has passed since the previous speech of the Fed chairman in Congress, it is possible that Jerome Powell will devote a significant part of his speech in explaining why the Central Bank believes that over the past few months, the need for rate cuts has increased significantly.
If in February, the Fed did not rule out a toughening of the policy, the labor market was strong and the regulator's prospects for the American economy were not in doubt. The Central Bank removed the word "patience" from the text of its statement last month and said that the level of uncertainty had increased.
Thus, easing of the Fed's monetary policy in July seems inevitable but the dynamics of the US currency indicates that traders are not ready for negative comments from Jerome Powell. They seem to be hoping that stronger than expected US market data will allow the Fed to postpone the rate cut until September or reinforce the Central Bank in the idea that a cut in July is all that is currently required by the American economy.
It is assumed that if the speech of the Chairman of the Federal Reserve in the Congress will be optimistic. Then, the USD/JPY pair will test the strength of 109 and EUR/USD pair will drop below 1.12. Powell focuses on potential risks and spends a significant part of his speech talking about slowing the US economy. Hence, the USD/JPY pair will turn around and fall below 107.50, and the EUR/USD pair will rise above 1.13.
