Dollar Weakness May Rebound as Hopes for Iran Deal Fade

The US dollar has weakened across the board following de-escalation in the Middle East and increased hopes for a US-Iran deal, but this momentum may wane unless there's another escalation.

The next major event will be the US CPI report next week, which will be critical for the September FOMC decision and the Jackson Hole Symposium. A hot report will likely trigger a rally in the US dollar, with traders increasing rate hike bets, while a soft report should reduce further the risk of Fed tightening and put more pressure on the greenback.

The NFP report today is generally one of the most market-moving economic releases, but policymakers have been repeating that the labour market is stable and not a source of inflation. Wage growth has been easing steadily since 2022 and is hovering around pre-covid levels, so it's recommended to focus more on average hourly earnings rather than employment numbers.

The EUR/USD pair is consolidating as momentum waned at a major downward trendline, with sellers likely stepping in above the trendline to position for a drop into the 1.13 handle, while buyers continue to wait for a breakout to increase bullish bets into the 1.18 handle.