The dollar is stable in European trading, showing only slight changes. European markets are quiet as everyone waits for the upcoming Jackson Hole event. Recent strong PMI data from the euro area confirmed the ECB’s choice to hold off on rate cuts, but this hasn’t greatly affected market movements.

Cautious Atmosphere in Equities

A cautious mood is present in the equities market, which affects currency trading. Traders are closely watching Fed Chair Powell’s speech, as it could influence market trends. Other upcoming factors that might affect the market include Walmart earnings, US jobless claims, PMI data, and comments from Fed officials. For now, European trading is peaceful, typical of a summer day. For the week, notable changes in dollar pairs include EUR/USD down by 0.4% and USD/JPY up by 0.4%. GBP/USD fell by 0.5%, while USD/CHF dropped a bit by 0.1%. USD/CAD increased by 0.4%, whereas AUD/USD and NZD/USD faced bigger drops of 1.2% and 1.5%, respectively. The declines in both Australian and New Zealand dollars are mainly due to a cautious market outlook and the Reserve Bank of New Zealand’s surprise decision to adopt a dovish stance. The current market calm feels like the quiet before the storm as everyone awaits Powell’s speech at Jackson Hole. This low-volatility atmosphere, with the CBOE Volatility Index (VIX) resting at a low 14, presents a unique opportunity for options traders. We see this as a chance to purchase volatility through strategies like straddles, as a significant price movement in the dollar is expected after the Fed provides clarity. Powell’s speech tomorrow is crucial, and we expect a reaction in the US dollar. The last US Core CPI figure for July 2025 was persistently high at 3.1%. If he adopts a hawkish tone, the dollar could rise sharply. Reflecting on Powell’s impactful speech in August 2022, which caused the S&P 500 to drop over 3% in one day, it’s clear that unexpected announcements can trigger swift and significant market changes.

ECB Policy and Market Reactions

The European Central Bank appears satisfied with keeping rates steady for now, especially after recent solid PMI results. This decision creates a clear difference from the Federal Reserve, which continues to tackle ongoing inflation. We think this difference makes buying put options on the EUR/USD a smart strategy against a strong dollar in the upcoming weeks. We are also monitoring the Australian and New Zealand dollars, which have shown notable weakness this week. The unexpected dovish shift from the Reserve Bank of New Zealand yesterday highlights their fragility in a cautious market environment. If Powell hints at maintaining higher rates for a longer period, these commodity-linked currencies will likely decrease further against the dollar. Create your live VT Markets account and start trading now.

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