- The US dollar has shown stability following a significant drop during the week, with the DXY index maintaining support above 97.00.
- Optimism about trade has heightened risk appetite, spurred by tariff agreements with Japan, Indonesia, and the Philippines.
- US President Donald Trump visited the Federal Reserve at 20:00 GMT, which adds political pressure on Chairman Jerome Powell.
The US Dollar (USD) is expected to pause on Thursday after hitting two-week lows on Wednesday, driven by new optimism surrounding global trade. An agreement between the US and Japan, alongside a potential for similar deals with the EU, has boosted market sentiment and reduced the need for safe havens. There are lingering concerns regarding the Federal Reserve’s independence, but some technical adjustments after recent sales may provide stability for the dollar.
The US Dollar Index (DXY), which gauges the dollar’s value relative to six major currencies, is positioned between 97.00 and 97.50. As of Thursday’s US trading hours, the index was around 97.30, attempting to recover from mid-week declines.
Reports emerged on Wednesday indicating progress in trade agreements between the US and the EU, reflecting recent agreements. A 15% baseline tariff on most EU exports to the US is being discussed, with exemptions for key sectors like aircraft and medical devices. This represents a notable shift from past tensions where the US threatened tariffs of up to 30% on certain European goods. Nonetheless, if consultations do not succeed, Brussels is prepared to retaliate with tariffs on US goods ranging between 90 billion and 100 million euros. With the August 1 deadline approaching, market sentiment is turning favorable regarding the resolution of trade tensions.
This Thursday, the US economic calendar includes early unemployment claims data and the preliminary Purchasing Managers Index (PMI), with the S&P Global Manufacturing and Services PMI set for release at 13:45 GMT and unemployment claims due at 12:30 GMT. Analysts anticipate manufacturing PMI will rise steadily to about 52.5, while services may increase modestly to around 53. A strong PMI could lead to expectations that the Fed will hold off on interest rate cuts, supporting the dollar, but softer results might lean toward a more dovish Fed stance.
Market Movers: Global Markets Rise Amid Tariff Developments
- Data from July’s S&P Global PMI painted a mixed picture. The Flash Composite PMI rose to 54.6 from June’s 52.9, marking the highest overall business activity in seven months. The Services PMI increased to 55.2, exceeding the 53.0 forecast, showing strength in the services sector. However, the Manufacturing PMI fell to 49.5, disappointing expectations and indicating contraction.
- First-time unemployment claims in the US decreased to 217,000 for the week ending July 19, which was better than the expected 221,000 to 227,000 range. This is the lowest figure since mid-April, hinting at ongoing labor market stability. However, ongoing claims rose to approximately 1.955 million, suggesting a slight slowdown in reemployment.
- On Wednesday, President Trump reinforced his tough trade position, suggesting future tariffs on trading partners could range from 15% to 50%, contingent on whether they permit mutual market access. He noted that tariff reductions would only be extended to those countries willing to open their markets to US goods and services. This comes on the heels of recently announced bilateral agreements, including a 19% tariff with Indonesia and the Philippines, which Trump labeled as “fair and historic,” indicating further potential deals with the EU and India as the August 1 deadline approaches.
- Following a rise in previous sessions, US Treasury yields held steady at nearly 4.39% for the benchmark 10-year note on Thursday. This stability reflects persistent anchor yields amid growing US budget deficits, inflation uncertainty, and concerns over the Federal Reserve’s independence, particularly given the strong interest from private holders of US debt totaling over $5 trillion.
- Global equity markets saw gains across the board. The Nikkei 225 closed at 3,826, with a gain of 1.75% in the broader Topix index to 2,978. European indices also recovered, with the STOXX 50 up nearly 1% and the STOXX 600 rising by 0.6%. US equity futures turned positive, buoyed by optimistic trade news and upcoming key technology earnings.
- President Trump’s visit to the Federal Reserve in Washington at 20:00 GMT on Thursday adds political pressure on Chairman Powell, especially amid Trump’s continual critique of high interest rates and scrutiny over the Fed’s ongoing renovation project costing $2.5 billion. The unusual visit raises concerns about the Fed’s independence, and many are watching closely, as it may introduce volatility in the dollar and bond markets.
- The Fed is anticipated to make its monetary policy announcement on July 30, with many expecting no change in the current rate range of 4.25%-4.50%. However, the internal divisions within the Fed have gained attention. Policymakers like Waller and Bowman back rate cuts for July, while Chair Powell and others take a more cautious, data-dependent approach due to weak inflation and slowing growth. A recent Reuters poll didn’t foresee a cut in July, though over 50% of economists predicted the first cut could occur in September.
- The European Central Bank maintained the deposit facility rate at 2.00% on Thursday, following seven consecutive cuts. The central bank reiterated its data-dependent meeting approach for shaping monetary policy, highlighting the ongoing uncertainties, particularly regarding trade disputes.
- Thursday’s Flash PMI data underscored divergent global trends. Eurozone PMI rose to an 11-month high of 51.0, while the UK’s held steady at 51.0, indicating a slowdown. In Asia, Australia reported a strong composite PMI of 53.6, backed by a robust services sector, marking the best performance in over a year. Meanwhile, Japan’s manufacturing sector faced contraction at 48.8, offset by stability in services.
Technical Analysis: US Dollar Index Shows a Relaxed Wedge with 97.00 Support
The US Dollar Index (DXY) seems to find stability on Thursday after recently dropping from a near four-week high. Price movement slowed as it faced resistance around the 97.80-98.00 range following a fall below significant support. The pullback remains above the psychological threshold of 97.00, providing some intraday support. This level aligns with the upper boundary of the falling wedge pattern that was decisively broken last week, creating a retest zone that may serve as short-term support as traders reassess broader trends.
The relative strength index (RSI) currently sits at around 42.68, suggesting a bearish trend but not overly so. This means that while the pace of the decline appears to be waning, there’s still potential for further downside. The RSI has been low since the rejection near the psychological level of 99.00 and may indicate a potential reversal or corrective bounce if the support at 97.00 holds.
Conversely, immediate resistance can be seen around the 97.80-98.00 area, which previously functioned as strong support. A sustained movement above this level could alleviate short-term pressure and shift momentum favorably for buyers. On the downside, losing the 97.00 handle might trigger a drop below the wedge retest zone, exposing the index to a deeper pullback toward 96.50, eventually approaching 96.30, which was noted on July 1.
