Dollar Strengthens on Fed Signals of a Pause in Rate Cuts

The US dollar firmed after comments from Federal Reserve Chair Jerome Powell, who suggested that further rate cuts are unlikely in the coming months. While markets continue to price in policy easing by the end of the year, the current rhetoric points to a pause in the near term, supporting the dollar in USD/JPY and USD/CAD pairs.

In the upcoming sessions, the key driver for the currency will remain US and Canadian data releases. Today, investors will focus on US Q2 GDP, weekly jobless claims and durable goods orders. Additional interest will centre on the Kansas City Fed manufacturing index and weekly housing reports. Tomorrow, attention will shift to the Core PCE Price Index — the Fed’s preferred measure of inflation — along with Canadian July GDP and US household income and spending data.

USD/JPY

After a false break below key support at 146.30 last week, USD/JPY buyers managed to form a bullish “piercing line” candlestick pattern. This setup helped lift the pair towards the upper boundary of the medium-term range at 146.30–149.00. Technical analysis of USD/JPY chart indicates a potential return inside this corridor, unless we see a daily close above 149.00 in the coming sessions.

Events likely to influence USD/JPY:

• Today at 15:30 (GMT+3): US core durable goods orders;
• Today at 15:30 (GMT+3): US GDP;
• Today at 15:30 (GMT+3): US initial jobless claims.

USD/CAD

USD/CAD buyers have brought the pair close to August’s highs for the year. If the 1.3900–1.3920 range establishes itself as support, the price may extend gains towards the psychological resistance at 1.4000. Conversely, as the USD/CAD chart suggests, a rejection from these levels and the formation of reversal patterns could trigger a downward correction, testing key levels in the 1.3820–1.3850 area.

Events likely to influence USD/CAD:

• Today at 20:00 (GMT+3): remarks by Michael S. Barr, Fed Vice Chair for Supervision;
• Tomorrow at 15:30 (GMT+3): US Core PCE Price Index;
• Tomorrow at 15:30 (GMT+3): Canadian GDP.

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