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  • US Dollar Index retreats from 2-month highs, edges lower toward 98.
  • Dallas Fed Manufacturing Index improves slightly in July.  
  • FOMC is expected to announce a 25 bps rate cut on Wednesday.

The EUR/USD pair dropped to a daily low of 1.1113 during the European trading hours but erased its losses in the second half of the day as the USD struggled to preserve its strength. As of writing, the pair was trading at 1.1140, adding 0.15% on a daily basis.

After the first estimate of the second-quarter GDP data released by the US Bureau of Economic Analysis (BEA) on Friday showed that the real economy expanded by 2.1% to beat the market expectation of 1.8%, the US Dollar Index (DXY) gained traction and closed the week 0.86% higher.  

USD performance likely to continue to drive the pair

At the start of the week, the DXY pushed higher amid the sharp drop witnessed in the GBP/USD pair and reached its highest level in two months at 98.17 to weigh on the pair. However, the selling pressure surrounding the GBP allowed the shared currency to find demand and remain resilient against the USD, triggering a recovery during the American trading hours.

Today’s only data from the US showed that the Dallas Fed Manufacturing Index improved to -6.3 in July from -12.1 in June but was ignored by investors ahead of Wednesday’s critical FOMC announcements. At the moment, the DXY is still up 0.17% on the day.  

Previewing the Fed meeting, “Given crosscurrents persist as a threat for the outlook and inflation remains subdued, we look for the Fed to leave the door open to further easing. We expect the statement to show modest, mark-to-market changes and for two of the FOMC voters to dissent,” said TD Securities analysts.

Tomorrow, the European Commission will publish the latest version of its Consumer and Business survey and the BEA will publish the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred gauge of inflation.

Technical levels to watch for