The U.S. dollar index held near two-week lows on July 24–25 as markets positioned themselves for critical central bank decisions in the coming days, particularly from the Federal Reserve and Bank of Japan.
While the dollar showed modest gains on Friday, it remains on track for its largest weekly loss in about a month, shedding roughly 1 percent on the week. Investors focused on tariff negotiations ahead of an August 1 deadline and awaited signals from the Fed and BOJ meetings slated for next week.
Both central banks are widely expected to keep interest rates steady at their upcoming sessions. However, traders are keenly watching the subsequent commentary, as policymakers’ forward projections could influence expectations for future policy shifts.
Fed Chair Jerome Powell is expected to reaffirm a patient, data-dependent approach, while BOJ participants will be monitored for indications of Japan’s next potential rate move.
The yen rose approximately 1 percent over the week against the dollar, closing at around JPY 147.10–147.20, benefiting from optimism over a recently struck U.S.–Japan trade deal that cut auto import tariffs to 15 percent. That deal has also added fuel to speculation that the BOJ may consider its first rate hike later this year.
The euro gained modestly and traded near $1.1755, holding gains linked to the ECB’s rate-hold decision and near-finalization of a U.S.–EU trade agreement.The Australian and Canadian dollars also edged higher as risk appetite improved on trade optimism.
Hangover effects from U.S. political tensions contributed to currency pressure. President Trump’s visit to the Fed marked by criticism of renovation spending and renewed calls for lower interest rates bubbled concern about possible political interference. Still, markets appeared largely unfazed in the absence of substantive signals that Fed independence was in danger.
Market sentiment remains cautious ahead of the Fed’s two-day policy meeting, where policymakers are expected to hold rates in the 4.25–4.50 percent range. Traders have priced in about 43 basis points of potential rate cuts by year-end, with September and December emerging as likely windows for easing.
Investors are also focusing on the BOJ’s upcoming decision. While no immediate rate change is forecast, analysts see increasing odds of a rate hike later in the year as Japan’s trade dynamics and inflation picture evolve. With markets pricing in a 25-basis-point hike as plausible, attention will center on how BOJ communicates its forward guidance.
In summary, the U.S. dollar is stabilising after marking a weekly decline nearing 1 percent, as traders pause ahead of key policy signals from the Fed and BOJ. Upcoming speeches, economic projections, and subtle shifts in central bank rhetoric may be enough to redirect currency momentum in the weeks ahead.
Written By Ian Maleve
