Thursday delivered the first meaningful setback to the dollar’s rally. After rising for three straight sessions and touching a 13-month peak, the greenback retreated as U.S. inflation data eased expectations for additional Fed hikes. Reuters reported that the dollar index fell 0.19% to 101.41 and was on track for its biggest daily percentage drop in two weeks. The euro rose 0.16% to $1.1375.
The move came after the dollar had risen in five of the previous six sessions, powered by growing expectations that the Fed could hike this year. Thursday’s data did not destroy the hawkish Fed narrative, but it cooled it enough to trigger profit-taking.
The broader market also saw modest reversals. Reuters described the day as one where the dollar rally and oil slump paused for breath, while European and Asian stocks rose but Wall Street remained weighed down by megacap technology weakness.
This made Thursday less of a full anti-dollar reversal and more of a tactical correction after an overextended move.
EUR/USD
Technical Analysis
EUR/USD rebounded from depressed levels after falling sharply earlier in the week. The pair’s recovery was modest but important because it showed sellers were beginning to take profits near stretched downside levels.
Technically, the pair was still in a bearish short-term trend, but Thursday’s stabilization reduced immediate downside pressure. A sustained move back above broken support would be needed to confirm a stronger recovery.
For now, the euro’s rebound looked corrective, not yet trend-changing.
Fundamental Analysis
The euro benefited from the cooling of Fed hike expectations. With U.S. inflation data easing some pressure on the Fed, the dollar’s yield advantage narrowed slightly. That gave EUR/USD room to recover.
However, the euro still faced structural challenges. The eurozone growth backdrop remained weaker than the U.S., and the ECB had less room to sound aggressively hawkish without worsening growth concerns.
That explains why the rebound was limited. Inflation data gave the euro breathing room, but not a full bullish catalyst.
GBP/USD
Technical Analysis
GBP/USD stabilized after several weak sessions. Sterling recovered modestly, but price action remained cautious. The pair was still trading below levels seen before the dollar’s mid-June surge, suggesting that bullish conviction remained limited.
Technically, the pound needed more than one softer dollar day to restore its earlier recovery pattern. The pair remained vulnerable unless it could reclaim prior support-turned-resistance.
Fundamental Analysis
Sterling benefited from softer U.S. inflation data and the resulting pullback in the dollar. However, UK-specific concerns continued to limit upside.
Political uncertainty remained a lingering issue, and the Bank of England still faced a difficult mix of sticky inflation and weak growth. That makes sterling less straightforward than the euro in some environments. If global risk improves, GBP can recover; but if domestic political or fiscal concerns intensify, it can lag.
On Thursday, GBP/USD stabilized mainly because the dollar weakened, not because the pound had a strong independent catalyst.
USD/CHF
Technical Analysis
USD/CHF pulled back after several strong dollar sessions. The pair lost momentum as dollar longs were trimmed, but the decline remained orderly. Technically, USD/CHF was correcting rather than reversing.
The broader structure still favored the dollar as long as the pair remained above recent support levels. However, Thursday’s move showed that upside momentum had become stretched.
Fundamental Analysis
The Swiss franc benefited from the dollar’s retreat, but the move was not a classic safe-haven shift. Instead, it reflected a reduction in the dollar’s rate advantage after inflation data cooled Fed hike bets.
This is important because USD/CHF had rallied earlier not just because of safety demand, but because the dollar offered both safety and yield. When the yield argument weakened, the pair naturally pulled back.
Market Outlook
Thursday did not fully reverse the dollar rally, but it changed the tone. The market had become heavily positioned for Fed hikes, and softer inflation data forced traders to reassess.
For now:
- EUR/USD has stabilized but remains technically fragile.
- GBP/USD is recovering mainly because the dollar softened.
- USD/CHF is correcting after a strong run.
- The dollar remains supported overall, but the one-way rally has paused.
The next test would come from additional U.S. data and whether oil’s decline continued to reduce inflation expectations.