The USD remains stable against EURUSD, USDJPY, and GBPUSD as attention turns to Fed Chair Powell’s upcoming speech. NZDUSD saw a decline following a dovish RBNZ rate cut.
In the UK, July CPI exceeded expectations, with both headline and core rates at +3.8% year-on-year. Services inflation poses a challenge for the Bank of England amid rising stagflation risks. The GBPUSD is stable around 1.3490, with options at 1.3500 limiting movement.
MBA Mortgage Applications
In the US, MBA mortgage applications declined by 1.4% for the week ending August 15. The market index fell to 277.1, and the refinance index dipped to 926.1, with the purchase index holding at 160.3. The 30-year mortgage rate inched up to 6.68%.
Anticipation builds for Fed statements as tensions rise over inflation and political pressures for rate cuts. Expectations are for a 25 bp cut next month. ECB’s Lagarde noted slowing euro-area growth, with no new policy signals. Markets see an 11 bps easing likelihood by year-end.
The NZDUSD fell after RBNZ reduced the OCR to 3% and projected lower rates until 2026. Equity markets in the US are trading lower, with Dow down -14.27 points, NASDAQ down -47.02 points, and S&P down -6.37 points. US yields remain unchanged across most durations.
We are in a holding pattern as the market waits for Fed Chair Powell’s speech at Jackson Hole this Friday. The US dollar is flat against major currencies, signaling that traders are avoiding large bets until we get a clear policy direction. This quiet period is an ideal time to position for the volatility that is likely to follow the speech.
Anticipation for Fed Chair Powell’s Remarks
The key tension for the Fed is that recent data showed July 2025 inflation remained elevated at 3.5%, while the market is pricing an 85% chance of a rate cut in September, based on CME FedWatch data. This discrepancy means Powell’s remarks could cause a major repricing, making options strategies like straddles on the EURUSD or USDJPY attractive to play a breakout. We are seeing a notable rise in one-week implied volatility for major currency pairs, reflecting this anticipation.
In the UK, inflation for July 2025 unexpectedly ticked up to 3.8%, cementing expectations that the Bank of England will pause its own rate cycle. With a 94% probability of a hold already priced in and large options expiring at the 1.3500 level for GBPUSD, this pair may remain range-bound in the near term. This suggests that selling volatility on the pound could be a viable strategy leading up to Friday.
ECB President Lagarde acknowledged slowing growth, but futures markets show traders are not yet convinced that rate cuts are imminent in the Eurozone. If Powell signals a dovish turn, the dollar could weaken significantly against the euro, as the Fed would be seen as acting more decisively. Looking back at 2023, periods where the Fed diverged from the ECB led to sustained trends in the EURUSD.
The clearest path is visible in the NZDUSD after the Reserve Bank of New Zealand cut its rate to 3% and explicitly guided for more easing. Their forecasts now show the policy rate falling to 2.71% by the end of this year, confirming a strong dovish stance. This makes selling into any rallies or using put options on the kiwi dollar a straightforward strategy to follow the established momentum.
