US Dollar Weekly Outlook: Trade Hopes vs. Fed Uncertainty
US Dollar Weekly Outlook: Boosted by Trade Optimism and Economic Strength.
The recent US Dollar (USD) rally to multi-week highs lost momentum this week, with the US Dollar Index (DXY) slipping back toward the key 97.00 support zone. Although the index is on track to post monthly gains—snapping a five-month losing streak—uncertainty still looms over the Greenback.
Easing geopolitical tensions shifted the market focus back to trade developments, driving overall sentiment. Positive US economic data also added to the upbeat tone, reinforcing the view of a resilient economy. Meanwhile, US bond yields rose slightly on the short end but declined at the mid and long-term maturities, reflecting mixed market expectations.
Optimism around global trade improved after the announcement of a US-Japan agreement, renewing investor hopes for a similar breakthrough with the European Union. Despite President Trump casting doubt on a deal with the EU, the European Commission remains optimistic, even as it prepares counter-tariffs on $100 billion worth of US goods. A potential compromise, echoing the US-Japan 15% uniform tariff structure, is reportedly in discussion.
However, trade tariffs remain a double-edged sword. While they might offer short-term relief for consumers, over time they risk raising prices, curbing spending, and slowing economic growth. The White House’s behind-the-scenes preference for a weaker USD could help exports but complicates broader trade balance goals. Reviving domestic manufacturing also remains a long-term challenge, requiring time and substantial investment.
Meanwhile, expectations for a July Fed rate cut have faded. The upcoming Federal Reserve meeting is expected to keep rates steady for a fifth time, but officials still anticipate multiple cuts before year-end. Fed Chair Jerome Powell continues to exercise caution, particularly amid ongoing trade uncertainty and inflation risks. Despite political pressure from President Trump, Powell shows no signs of stepping down or changing course prematurely.
What lies ahead for the US Dollar?
The coming week is pivotal. Markets await critical US data, including July’s Nonfarm Payrolls, Q2 GDP, and the ISM Manufacturing PMI. Equally important is the August 1 trade deadline—if no deals are reached, new tariffs could reignite global trade tensions.
Conclusion:
Despite intermittent strength, the US Dollar remains vulnerable. Trade uncertainty, fiscal imbalances, and a softening Fed outlook could keep the Greenback under pressure. Unless a clear catalyst emerges, a sustained USD rebound seems unlikely in the near term, especially as policymakers may favor a weaker currency to address trade imbalances.