US Dollar steadies after Fed, Trump comments and UK trade deal
- US Dollar Index recovers slightly but fails to break above 100.23 resistance.
- Trump announces a UK trade deal, but tariffs remain.
- Traders continue to digest Wednesday’s Fed decision.
The US Dollar Index (DXY), which measures the value of the US Dollar against a basket of currencies, trades near 100.00 on Thursday, lifted modestly by upbeat US data and expectations of extended yield differentials. Markets initially cheered news of a US-UK trade deal, though enthusiasm faded as details confirmed tariffs would remain in place.
Daily digest market movers: US Dollar holds ground after muted UK deal
- US President Donald Trump announced a “major” trade deal with the United Kingdom, though key tariffs will remain at 10%, limiting market enthusiasm.
- Investors remain skeptical about progress on China tariffs as Trump shows no intent to ease 145% duties and China delays negotiations.
- Markets await this weekend’s preliminary US-China trade discussions in Switzerland, but both sides are downplaying hopes for rapid breakthroughs.
- The July 9 deadline for the Trump administration’s tariff review approaches with limited new trade agreements signed so far.
- US jobless claims fell to 228,000, beating market expectations and suggesting labor market strength.
- The Bank of England reduced its policy rate by 25 basis points to 4.25%, widening the interest rate gap versus the US and boosting USD demand.
- US Treasury yields remain supported with the 10-year note at 4.345%, ahead of a $39 billion auction and FOMC communication expected next week.
- Risk sentiment improved after equities rallied, with the Dow Jones up over 1.6% as hopes grew for more trade clarity.
- Gold surged to $3,400 per ounce as investors hedged against lingering trade tensions and muted USD upside despite central bank divergence.
- Trump hinted that more trade announcements could come in “weeks,” but offered no timeline for actual agreement signings.
- Fed Chair Jerome Powell’s next speech remains key, with the central bank expected to hold rates steady while inflation remains a concern.
- Markets continue to price in two Fed rate cuts by year-end with the first move projected in July, barring strong inflation surprises.
- Asian currencies remain firm as countries like Singapore and Malaysia tolerate stronger FX to ease trade frictions with the US.
US Dollar Index technical analysis: Not bullish yet
The US Dollar Index (DXY) trades around 100.00 with a modest 0.25% daily gain. Price action remains capped within the 99.61–100.21 range. The Relative Strength Index (RSI) at 45 and the Average Directional Index at 48 both signal neutral momentum.
The Moving Average Convergence Divergence (MACD), however, flashes a buy, while the Ultimate Oscillator also trends neutral at 61.24. Mixed moving average signals highlight indecision: the 20-day Simple Moving Average (SMA) at 99.64 supports buyers, but the 100-day (105.17) and 200-day (104.33) SMAs continue to reflect broader bearish pressure. Key resistance is located at 100.23, 100.86 and 100.91; support lies at 99.83, 99.81 and 99.67.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named 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 during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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