- The US Dollar stabilizes on Wednesday after a sharp three-day decline.
- US President Donald Trump announces a $550B trade deal with Japan, easing trade tensions.
- Political pressure mounts on Fed Chair Powell; Trump calls him a “numbskull.”
The US Dollar (USD) steadies on Wednesday after a rough three-day decline. Traders seem to be taking a breather as tensions around global trade ease somewhat after the US and Japan reached a trade deal ahead of the looming August 1 tariff deadline. At the same time, growing political heat on the Federal Reserve (Fed), with fresh criticism aimed at Chair Jerome Powell, has reignited concerns over the central bank’s independence, keeping market sentiment fragile and the Greenback on the back foot.
The US Dollar Index (DXY), which gauges the Greenback’s strength against six major peers, is consolidating below 97.50 in Wednesday’s American trading session, pausing after a sharp pullback from near four-week highs. The index is down around 1.10% so far this week as traders turn cautious and await more clarity on trade talks.
US President Donald Trump fueled cautious optimism on Tuesday after announcing what he called a “massive” trade deal with Japan, describing it as “perhaps the largest deal ever made.” The United States and Japan have reached a new trade agreement that reduces the previously proposed 25% tariffs on a wide range of Japanese goods to a lower 15% rate. According to Trump, Japan will invest $550 billion in the United States, with 90% of the profits expected to return to American industries. He also claimed the agreement would create “hundreds of thousands of jobs” and open up Japanese markets to US exports, including cars, trucks, rice and agricultural products.
The deal has helped ease fears of a broader trade escalation ahead of the August 1 deadline and sparked optimism that Washington may pursue similar negotiated outcomes with other trading partners. However, with other negotiations still unresolved, especially with India and the European Union (EU), uncertainty continues to hang over the US Dollar’s near-term outlook.
Market movers: Global trade deals take shape as tariff deadline nears
- Data released today showed that Existing Home Sales in the US fell 2.7% in June to an annualized rate of 3.93 million units, missing expectations of 4.01 million. It’s the slowest pace since September 2024, as rising mortgage rates and a record-high June median price of $435,300 continue to sideline buyers. This marks the 24th straight year-over-year increase in home prices, underscoring persistent affordability challenges in the housing market.
- On Tuesday, President Trump announced a 19% tariff on imports from the Philippines. In return, the US secured zero tariff access for a wide range of American goods.
- Under a new framework, the US has agreed to lower tariffs on Indonesian goods to 19% from the previously proposed 32%. However, goods suspected of being “transshipped” to avoid higher duties from other countries will be subject to a 40% tariff. In return, Indonesia has committed to eliminating tariffs on over 99% of US products exported to Indonesia and scrapping non-tariff barriers.
- EU Trade Commissioner Maros Sefcovic arrived in Washington on Wednesday for talks aimed at negotiating sweeping US tariffs of up to 30% on European goods. With the August 1 deadline fast approaching, Brussels is pushing for a trade deal to avoid high tariffs, while preparing retaliatory measures in case the talks fail to progress.
- Trade Secretary Scott Bessent is expected to meet with Chinese officials next week in Stockholm. He also signaled that the current tariff truce with China is likely to be extended ahead of its expiration on August 12.
- President Trump said earlier that a trade deal with India is close, but talks remain stalled. According to Reuters, hopes for a smaller agreement between the US and India before the tariff deadline have faded with major differences over agricultural and dairy products. While US representatives are expected to visit India later in July, the delay raises the risk of fresh tariffs on Indian exports.
- Fed Chair Jerome Powell remains under fire after President Trump renewed public attacks, calling him a “numbskull” and suggesting he will be gone in eight months. Meanwhile, Scott Bessent stated in an interview on Tuesday that there is nothing that suggests he should resign. He acknowledged Powell as a good public servant and indicated that Powell should continue his term, which ends in May 2026.
- All eyes turn to Thursday’s flash Purchasing Managers Index (PMI) releases from the US, Eurozone, and UK, with investors watching closely for signs of resilience or weakness in the global economy. The data will offer fresh insight into manufacturing and services activity for July, and could influence rate expectations heading into August. A softer US print may weigh on the Dollar, while a stronger-than-expected reading could reinforce hopes of a soft landing.
Technical Analysis:
The US Dollar Index (DXY) is treading water near 97.40 after a sharp pullback from its recent highs. Price is currently hovering just below the upper boundary of a falling wedge pattern, which had previously been breached to the upside but is now being retested as potential support-turned-resistance. This kind of wedge retest is often pivotal. If bulls fail to reclaim the broken structure with conviction, it could signal a false breakout and shift the technical tone back to bearish. The 9-day Exponential Moving Average (EMA), now trending slightly above at 97.84, adds to the pressure capping the upside.
The Relative Strength Index (RSI) has dipped to 42.50, indicating a fading of momentum and a lack of strong buying conviction. If the index can bounce from current levels and reclaim both the wedge and the 98.00 psychological barrier, bullish momentum may resume. However, a clean rejection from this zone could expose the DXY to a deeper drop toward the next support band around 96.70-96.50.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.