FX Daily: What to make of Powell’s firing that never was

Markets briefly reacted to an erroneous report of Fed Chair Powell's potential firing, causing temporary dollar weakness before a rapid reversal, underscoring market resilience to headline fatigue. Focus now reverts to macro data, with US PPI below expectations and upcoming retail sales data influencing the dollar, while the proposed €2tn EU budget increase and German rejection introduce long-term uncertainty for the Euro. Concurrently, significant upward revisions to UK May job losses alleviate pressure on the Bank of England, and the Hungarian Forint's recent rally is expected to reverse.

Analysis

Market focus has reverted to macroeconomic fundamentals after a brief, headline-driven scare over the potential dismissal of Fed Chair Powell, which caused a temporary 1.3% spike in EUR/USD before a swift reversal. This event highlighted the market's growing resilience to political noise, as pricing for a September Fed rate cut never exceeded 20bp, establishing a high bar for future headline-driven volatility. The US Dollar's near-term trajectory is now contingent on upcoming data like retail sales and TIC flows, especially after a soft PPI reading was offset by a prior, firm CPI report, anchoring September easing expectations at a modest 15bp. In Europe, the EUR faces long-term headwinds from the European Commission's proposed €2 trillion budget increase, which was immediately rejected by Germany, signaling a protracted negotiation that carries non-negligible implications for the currency's structural value. Short-term, EUR/USD is seen as more likely to test 1.150 than 1.170. Meanwhile, pressure on the Bank of England has eased significantly following a massive upward revision to May UK payroll data from a -109k loss to just -25k, making the 0.870 level in EUR/GBP a more formidable resistance. For the Hungarian Forint, a recent rally appears vulnerable, with disappointing wage growth and falling consumer confidence suggesting a reversal; the analyst forecasts EUR/HUF rising to 410 by year-end as dovish central bank repricing is anticipated.

Key Decisions for Investors

• Investors should fade sharp, unsubstantiated headline-driven dollar weakness and instead focus positioning on the outcomes of upcoming US retail sales and TIC flow data.
• Given the short-term bearish bias and long-term fiscal uncertainty for the euro, consider tactical positioning for a potential move in EUR/USD towards the 1.150 level.
• The significant upward revision in UK employment data reduces the probability of near-term aggressive BoE easing, suggesting the 0.870 level in EUR/GBP can be treated as a strengthened resistance point.
• Traders with long Hungarian Forint exposure should be cautious of a potential reversal, as slowing wage growth and anticipated dovish central bank repricing create downside risk, with a year-end EUR/HUF forecast of 410.