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Dollar can give back some recent gains, Thursday's jobs report and Warsh appearance in Sintra the focus.
The dollar's impressive run has entered a resting phase, and the balance of probabilities continue to lean on an extenion of that run.
For the pound-to-dollar exchange rate, that's a reminder that the prospect of further losses is a very much a real one, and it's what those with dollar payments should err towards expecting over the coming days and weeks.
That being said, the prospect of a relief rally in GBP/USD has risen following the heavy selling pressures of June, that left the pair looking oversold.
Favourable month-end flows are also supporting the dollar, and with the coming week seeing the month flip into July, the pound could be set for a 'revenge' bounce.
Nevertheless, gains are anticipated to be shallow as the technical setup and fundamental trajectory of the U.S. economy are consistent with further USD strength.
The balance of probabilities continues to favour the dollar GBP/USD trades below both the 1.3250 resistance level and its falling 100-day moving average.
Although the recent sell-off appears to be losing momentum and a short-term rebound cannot be ruled out, the broader technical picture remains bearish.
Sterling is likely to struggle unless it can reclaim the 1.3250-1.3300 area, while a break below 1.3160 would reinforce the downtrend and expose fresh downside in the weeks ahead.
Dollar Rally Not Done: TS Lombard
The primary driver for USD gains of late has been the sharp repricing in favour of Federal Reserve rate hikes in the coming months.
"The hawkish outcome of the June Fed policy meeting has been the most important recent event for FX markets, helping propel the USD to its highest level in more than a year of late," says Valentin Marinov, Head of G10 FX Strategy at Crédit Agricole.
Most analysts we follow think the repricing will end and even reverse, which would allow the USD to retreat.
But there's a word of warning from TS Lombard, the independent research house, who in a recent note said the dollar rally could still be in its infancy, which should give those with GBP/USD payment needs some perspective on current levels and near-term price action.
The new research from TS Lombard shows its economists see no less than five hikes in the pipeline from the Fed.
"We move to a positive stance on the dollar as US hiring seems to be at an inflection point. Following a couple of months of strong US hiring data, the discussion around the Fed has now firmly shifted towards how many hikes it will need to deliver in this cycle," says Daniel Von Ahlen, economist at TS Lombard.
Five hikes and a surging dollar are not something the FX market is currently positioned for.
U.S. Jobs Report in Focus
The TS Lombard bull thesis for the dollar rests heavily on a strong labour market. We'll get a fresh insight into America's jobs situation on Thursday with the release of non-farm payrolls.
After three consecutive months of strong payroll gains, averaging 188k per month, economists look for a modest payroll gain of around 114k for June.
"While layoffs remain low, the NFIB survey of small businesses' hiring intentions started slowing a few months ago and suggests job gains will slow through August," explains a weekly economic overview from UniCredit Bank.
Should payrolls undershoot expectations, the dollar would likely drop and pare some of its recent gains.
The unemployment rate probably held at 4.3% in May, with average hourly earnings rising another 0.3% mom.
Ahead of payrolls, keep an eye on Tuesday's release of JOLTS job openings for May, which are expected to have dropped to 7,000k from 7,618k in the prior month.
Watch Warsh on Wednesday
Sintra, Portugal, is the focus of the coming week as a number of central bankers will gather for the ECB's annual gathering.
The global highlight could well be on Wednesday, when the conference closes with a policy panel in which ECB President Christine Lagarde is joined by Kevin Warsh, Andrew Bailey (BoE) and Tiff Macklem (BoC).
"Warsh speaks at the Sintra central banking conference; any softening of his hawkish June FOMC stance will be closely watched against market expectations of a possible September hike," says a morning market note from Saxo Bank.
Any softening in tone would likely result in a strong dollar selloff, we believe.
Recall that it was Warsh's first meeting as Fed Chair that sparked a dollar rally because he seemed open to raising rates to deal with inflation.
Also recall that this is a central banker who doesn't want to talk too extensively about what the Fed might or might not do, so don't be surprised if he dodges any relevant policy issues completely at Sintra.