The USD experienced a notable rally on Tuesday, buoyed by a series of economic events and data releases. A focal point was Federal Reserve Chairman Jerome Powell's recent interview. Market participants eagerly anticipated guidance on future monetary policy, but Powell maintained a strategic silence, leaving traders without the clarity they sought.

 On the economic front, the spotlight was on consumer-centric data. The latest US Retail Sales figures revealed a robust increase of 0.4% for June, excluding the volatile automobile sector, outpacing the forecast and the previous month’s meager 0.1% rise. Moreover, the Retail Sales Control Group, closely watched as a proxy for consumer spending in GDP calculations, surged by 0.9%, a significant jump from the prior 0.4%. These figures signal strong consumer activity, bolstering the USD but doing little to alter the inflation trajectory.

Upcoming data releases, like the NAHB Housing Market Index for July, are also on traders' radars. With expectations of a slight increase from 43 to 44, this index will provide further insight into the housing sector’s health. Meanwhile, equity markets remain mixed; European equities are under pressure while US futures show modest gains, reflecting a cautious optimism among investors.

In the political sphere, former President Donald Trump made headlines with his announcement of Ohio Senator J.D. Vance as his vice presidential pick for the upcoming election. While political developments often have indirect effects on the forex market, Trump's influence on economic policy cannot be overlooked.

The interest rate derivatives currently show a 90% probability of a 25 bps interest rate cut by the Fed in September, with a 10.4% chance of a 50 bps cut.

On Monday, Powell hinted at growing confidence in the Fed’s inflation targets during his speech at the Economic Club of Washington. He emphasized the necessity for further assurance before rate cuts could be firmly on the agenda. Echoing this sentiment, San Francisco Fed President Mary Daly remarked that inflation appears to be aligning with the 2% target, though she avoided committing to a specific timeline for rate reductions. Daly’s comments reflect a delicate balancing act—maintaining downward pressure on inflation without jeopardizing job growth.

Turning our gaze across the Atlantic, the Pound Sterling has shown bullish momentum against major currencies, however, ceding ground to the USD on technical selling pressure and broad USD strength after Retail Sales release:

Attention now shifts to the upcoming UK CPI for June and employment data for the three months ending in May. These releases, scheduled for Wednesday and Thursday, respectively, are critical as they will influence the Bank of England’s (BoE) monetary policy direction. Market expectations suggest steady annual growth of 2% in headline CPI and 3.5% in core CPI, with monthly inflation projected to decelerate to 0.1% from 0.3%.