The USD remains steady against the EURUSD, USDJPY, and GBPUSD as everyone looks forward to Fed Chair Powell’s speech. The NZDUSD dropped after a dovish rate cut by the RBNZ. In the UK, July CPI was higher than expected, with both headline and core rates at +3.8% year-on-year. Services inflation is a challenge for the Bank of England due to increasing stagflation risks. The GBPUSD stands firm around 1.3490, with options at 1.3500 preventing much movement.

MBA Mortgage Applications

In the US, MBA mortgage applications fell by 1.4% for the week ending August 15. The market index dropped to 277.1, and the refinance index decreased to 926.1, while the purchase index stayed at 160.3. The 30-year mortgage rate rose slightly to 6.68%. Attention is focused on Fed statements as concerns grow about inflation and political pressure for rate cuts. A 25 bp cut is expected next month. ECB’s Lagarde mentioned slowing growth in the euro area, with no new policy updates. The market expects an 11 bps easing by year-end. The NZDUSD declined after the RBNZ lowered the OCR to 3% and indicated lower rates will continue until 2026. US equity markets are lower, with the Dow down -14.27 points, NASDAQ down -47.02 points, and S&P down -6.37 points. US yields have stayed the same across most durations. The market is currently in wait-and-see mode ahead of Fed Chair Powell’s speech at Jackson Hole this Friday. The US dollar is unchanged against major currencies, indicating that traders are hesitant to make large bets until there is a clear policy direction. This quiet period is a good time to prepare for the expected volatility after the speech.

Anticipation for Fed Chair Powell’s Remarks

The main concern for the Fed is that recent data showed inflation for July 2025 at 3.5%, while the market sees an 85% chance of a rate cut in September, according to CME FedWatch data. This difference means Powell’s comments could trigger significant market changes, making options strategies like straddles on the EURUSD or USDJPY appealing to capture a breakout. There has been a noticeable spike in one-week implied volatility for major currency pairs, indicating this expectation. In the UK, inflation for July 2025 unexpectedly rose to 3.8%, strengthening the belief that the Bank of England will pause its rate cycle. With a 94% chance of holding rates already factored in and substantial options expiring at the 1.3500 level for GBPUSD, this pair may stay range-bound for now. This situation suggests that selling volatility on the pound could be a smart strategy leading up to Friday. ECB President Lagarde recognized slowing growth, but futures markets show that traders aren’t convinced rate cuts are coming soon in the Eurozone. If Powell hints at a dovish shift, the dollar could weaken against the euro, since the Fed would be seen as taking more decisive action. Historical trends in 2023 show that when the Fed diverged from the ECB, it led to strong movements in the EURUSD. The best opportunity is visible in the NZDUSD, following the Reserve Bank of New Zealand’s cut to 3% and its clear guidance for more easing. Their forecasts now suggest the policy rate will drop to 2.71% by year-end, confirming a strong dovish stance. This presents a straightforward strategy: sell into any rallies or use put options on the kiwi dollar to follow the current momentum. Create your live VT Markets account and start trading now.

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