The USD has had a relatively calm European session today, maintaining its position amid the recent French election results. Meanwhile, the EUR/USD pair clings to its recent gains, staying above the 1.08 mark after hitting a three-week high of 1.0850 on Monday. The Euro's recent near-term strength is largely due to decreased political uncertainty in France. The failure of Marine Le Pen's far-right National Rally to secure an absolute majority has alleviated immediate concerns about a potential debt crisis in the country. This political stability is also mirrored in the bond market, where sovereign debt yield spreads across the EU—an important measure of bond market fragmentation risks—have recently narrowed:

Today's spotlight shifts to the US Federal Reserve, with Chairman Jerome Powell set to deliver testimony at the Congressional Financial Committee. Powell's remarks are highly anticipated, especially as the market seeks clarity on the Fed's stance on interest rates and inflation.

The market is also keenly awaiting the US CPI report for June, set to be released on Thursday. This report is crucial, as it will provide a clearer picture of inflationary trends. Core CPI, excluding food and energy prices, is expected to show steady growth, while headline figures are anticipated to decelerate. This data will be instrumental in shaping expectations for the Fed's actions in the coming months and, hence, for the dollar’s performance against its major peers:

Currently, US interest rate derivatives indicate a 77% chance that rates will be lower by the September meeting, a significant increase from last week's 66%. This shift in sentiment is driven by signs of a cooling labor market, with the unemployment rate reaching its highest level in over two years and average hourly earnings easing as expected in June. These indicators suggest that the Fed might pivot towards policy normalization sooner than previously anticipated.

Across the pond, the ECB is also making headlines. ECB policymaker and Dutch central bank chief Klaas Knot made comments on Monday that looked like an attempt to push back against expectations of a rate cut in July. However, Knot remained open to the possibility of rate cuts later in the year, specifically in September.

Meanwhile, the Japanese yen has been on a bit of a roller coaster. It bounced back above 161.00 against the USD halfway through the European trading day. This move comes as the BoJ conducts a consultation round with bond market participants, exploring ways to end its longstanding bond-buying program. The BoJ's survey unveiled a variety of options for reducing bond purchases, indicating a potential shift away from its ultra-loose monetary policy. This policy change could disrupt the bond market, posing a threat to the Yen and potentially leading to further weakness. From a technical perspective, the market may be inclined to test the upper boundary of the ascending channel, targeting the 165 level: