The US dollar rose against major currencies on Wednesday after the Federal Reserve kept interest rates unchanged, in line with market expectations, despite pressure from US President Donald Trump.

The Federal Open Market Committee voted 9 to 2 in favor of keeping the benchmark overnight interest rate in a range between 4.25% and 4.50%, marking the fifth consecutive meeting with no change.

Vice Chair for Supervision "Michelle Bowman" and Board Governor "Christopher Waller" — both Trump appointees — dissented, expressing a preference to cut interest rates by 25 basis points.

In a press conference following the decision, Federal Reserve Chair Jerome Powell said he expects the process of understanding the impact of tariffs on inflation to be “slow.”

“Otto Shienhara,” Chief Investment Strategist at “Mesirow Currency Management” in Chicago, said: “The Fed’s decision to leave interest rates unchanged wasn’t a surprise, but the market noted the two dissenting votes in favor of a cut.”

He added: “The dollar remained well supported following strong economic data this morning and the Fed announcement, while the market viewed the September meeting as a near coin toss.”

Investors’ conviction that Trump’s tariffs and excessive spending would cause long-term damage to the dollar and US equities is beginning to crumble, signaling tough times ahead for European and emerging market assets that previously benefited from this belief.

After recording its worst first-half performance since 1973, the dollar is now on track to post its first monthly gain in 2025, following the Fed’s refusal to cut interest rates, stronger-than-expected US growth data, and easing fears of a trade war.

This trend puts what is known as the “rest-of-world trade” — which hinges on declining confidence in US assets but is actually driven by investors’ desire to reduce exposure to a weakening dollar — at risk, according to investors.

On Thursday, futures trading pointed to US equities posting daily gains exceeding 1%, which could end the outperformance that European stocks have enjoyed this year, while the euro and emerging market assets in Asia fell sharply.

“Shaniel Ramji,” Co-Head of Multi-Asset Management at “Pictet Asset Management,” said: “Being bearish on the dollar and the US is one of the biggest positions among investors.” He added that he is preparing to increase his dollar exposure after being “close to zero,” expecting US economic trends to begin outperforming their European counterparts.

He pointed out that a broad dollar recovery could halt the major market trends of 2025.

With US rate cut expectations declining on Thursday, some investors said the Fed may support the idea of a dollar rebound to offset the impact of higher import costs from tariffs on consumer price inflation.

As of mid-July, the conviction that the dollar would decline was the most crowded trade among global fund managers, according to Bank of America research.

This large anti-dollar bet — estimated at $18 billion and considered the largest trade in FX markets — came under pressure after the euro, which had risen to $1.1789 earlier this month, fell to $1.1401 after the Fed meeting on Wednesday.

The single European currency, which recorded its best half-year performance in its 26-year history during the first half of the year, is now heading for its biggest monthly drop against the dollar since May 2023.

On Thursday, the MSCI Emerging Markets Asia stock index fell more than 1% to a two-week low, while the MSCI Emerging Market Currency Index was headed for its first monthly loss of the year.

Meanwhile, the British pound was on track for a weekly loss of 1.6%, potentially marking its worst weekly performance since the UK market turmoil in January.

“Michael Nezard,” Head of Multi-Asset at “Edmond de Rothschild Asset Management,” said: “We are seeing a shift toward US equities, a shift in FX markets, and a shift in momentum.”

He cited the trade framework agreement reached on Sunday between Washington and Brussels as one of the main reasons behind this trend, stating that he does not expect it to last through the end of the year, and added that he would buy the euro when it nears the $1.14 level.

However, “Bettina Edmonston,” Portfolio Manager at “River Global,” said the strength of the dollar would help curb US inflation, meaning that the Fed’s “put” — where the central bank intervenes to support falling markets with monetary policy — may have been reactivated in favor of the dollar.

She added: “I don’t expect interest rates to fall, which logically suggests the dollar will strengthen.”

Temporary?

“Monica Defend,” Head of the Investment Institute at “Amundi” — the largest asset manager in Europe — said she still holds her long-term view that the dollar is on a path of decline, due to Trump’s borrowing plans and ongoing attacks on the Fed’s independence.

But she added she is prepared to revise that view “if US growth surprises to the upside,” should the trend continue.

She said: “US exceptionalism may persist, not necessarily at the macro level, but more in the stock market.”

For his part, “Mark Ellis,” Chief Investment Officer at “Nutshell Asset Management,” said he is not certain that the US dollar and US equities will continue to rise together in August, traditionally one of the most volatile months for markets.

He added: “The end of this week marks a good time to reduce risk, and I’ll be more cautious as we enter the usual period of summer volatility and weakness.”

Meanwhile, “Emmanuel Cau,” Head of European Equity Strategy at “Barclays,” issued a different warning in a client note dated July 30.

He noted that trend-following hedge funds — known as CTAs — whose trades are a barometer of market sentiment, had closed their bets against US bonds and cut exposure to European equities.

He concluded by saying that “any more sustained dollar rebound would be one of the most painful challenges for global investors going forward.”

In trading, the US dollar index rose by 0.1% as of 11:56 GMT to 99.8 points, recording a high of 99.9 and a low of 99.5.

Gold prices climbed more than 1% in European markets on Wednesday as part of a recovery from a four-week low, returning to trade once again above $3,300 per ounce, driven by bargain buying at lower levels and supported by a pause in the US dollar's rally, in addition to increased safe-haven demand following the recent tariff announcements made by Donald Trump.

Following the Federal Reserve’s monetary policy meeting, which came in more hawkish than markets had anticipated, expectations for a US interest rate cut in September declined, and in order to reprice those expectations, markets await the release of more key data on the US labor market.

Price Overview

• Gold Prices Today: Gold rose by 1.2% to ($3,314.90), from the session’s opening level at ($3,275.61), recording a low of ($3,273.97).

• At Wednesday’s settlement, gold lost 1.5%, marking its fifth daily loss in the past six sessions, and its biggest daily drop since June 27, hitting a four-week low of $3,268.89 per ounce.

• The primary reason behind this steepest daily loss in a month was the strong rise in the US dollar in global currency markets, driven by better-than-expected US growth data and the hawkish Federal Reserve meeting.

US Dollar

The dollar index fell on Thursday by around 0.35%, retreating from a two-month high at 99.98 points, reflecting a pause in the dollar’s rise against a basket of major and minor currencies, which supports the recovery of gold and other commodities priced in the US dollar.

Apart from profit-taking, the US currency weakened as investors refrained from building new long positions ahead of the July jobs report, in addition to Trump’s announcement of new tariffs.

Trade Developments

The White House announced on Wednesday that US President "Donald Trump" signed an executive order imposing additional tariffs of 40% on Brazil, bringing the total tariff rate to 50%.

He also decided to impose a blanket 50% tariff on imports of semi-finished copper products and copper-intensive derivatives, effective August 1.

Trump also announced a 25% tariff on India, alongside an additional "penalty" against the Indian government due to its trade with Russia.

Federal Reserve

• In line with most expectations, the Federal Reserve on Wednesday left interest rates unchanged, keeping the target range between 4.25% and 4.50% for the fifth consecutive meeting.

• The Fed stated that the FOMC sees the risks of rising unemployment and inflation as still elevated, due to uncertainty surrounding the economic outlook.

• Fed Chair "Jerome Powell" said: The next steps we will take are likely to be more neutral. Powell added: I expect to see more effects from the tariffs in the inflation data.

US Rate Expectations

• Following the Fed meeting and according to the "FedWatch" tool from CME Group: the probability of a 25 basis point rate cut at the September meeting fell from 64% to 43%, while the pricing of a hold in rates rose from 34% to 57%.

• And the probability of a 25 basis point rate cut at the October meeting declined from 78% to 64%, while the pricing of a hold rose from 22% to 36%.

• Traders reduced their expectations for Fed rate cuts this year after Powell’s remarks, now projecting around 35 basis points of easing by December.

• And in order to reprice the September cut probabilities, markets are awaiting more key data on the US labor market, including weekly jobless claims and Friday’s July jobs report.

Gold Outlook

UBS analyst "Giovanni Staunovo" said: We saw some large declines in gold prices yesterday coinciding with the FOMC statement. He added: But today’s pause in the US dollar’s rise following Donald Trump’s tariff announcements supports higher gold prices.

SPDR Fund

Gold holdings in the SPDR Gold Trust, the largest gold-backed ETF in the world, declined yesterday by around 0.86 metric tons, bringing the total down to 955.37 metric tons, which marks the lowest level in a week.

The euro rose in European markets on Thursday against a basket of major global currencies, marking its first gain in six sessions against the US dollar. This comes as part of an attempted rebound from a two-month low, driven by renewed buying interest at lower levels. However, despite today’s rise, the euro is on track for its first monthly loss of 2025.

Later today, Germany is set to release key inflation data for July, ahead of the eurozone-wide inflation report due Friday. These figures are expected to offer new clues about the likelihood of a European Central Bank rate cut in September.

Price Overview

• EUR/USD today: The euro rose by 0.35% to $1.1443, up from an opening price of $1.1403, with a session low at $1.1402.

• On Wednesday, the euro closed down 1.25% against the dollar — its fifth straight daily loss — hitting a two-month low of $1.1400. This drop followed strong US growth data and a hawkish Federal Reserve meeting.

Monthly Performance

• For the month of July, which officially ends with today’s price settlement, the euro is down approximately 2.9% against the dollar. This marks its first monthly loss of 2025, and the biggest since December 2024.

• The decline is attributed to profit-taking and correction from a four-year high of $1.1830 earlier this month.

• Market concerns have grown over a potential eurozone recession due to escalating trade tensions between the EU and the US.

• Germany and France have strongly criticized the recently announced EU-US trade agreement.

ECB Policy Outlook

• Last week, the European Central Bank kept its key interest rates unchanged at 2.15%, the lowest level since October 2022, after seven consecutive rate cuts.

• The ECB has opted for a pause in monetary easing, awaiting more clarity on future US-EU trade relations.

• ECB President Christine Lagarde stated after the policy meeting: “We are in a wait-and-see position,” adding that the eurozone economy has shown resilience despite global uncertainties.

• According to Reuters sources, a clear majority within the ECB’s governing council favored keeping rates unchanged again in September.

• As a result, money market pricing for a 25-basis-point rate cut in September has dropped from 50% to below 30%.

German Inflation Data

To reassess the likelihood of a rate cut, investors are closely watching today’s release of Germany’s headline inflation data for July, ahead of tomorrow’s broader eurozone report.

These figures will indicate how much inflationary pressure is weighing on ECB policymakers. Higher-than-expected readings would reduce the probability of a September rate cut — and vice versa.

Outlook for the Euro

• At Economies.com we expect the following: If inflation data comes in hotter than market expectations, the likelihood of an ECB rate cut in September will diminish, potentially supporting continued recovery in the euro’s exchange rate in the foreign exchange market.

The Japanese yen rose during Asian trading on Thursday against a basket of major and minor currencies, beginning to recover from its lowest level in three and a half months against the US dollar, as buyers stepped in at lower price levels. However, despite today’s rebound, the yen is on track to post its biggest monthly loss in 2025.

As expected, the Bank of Japan decided to keep short-term interest rates unchanged for the fourth consecutive meeting, while raising inflation forecasts over a three-year horizon. The bank stated it would raise interest rates if economic and price conditions align with expectations.

Price Overview

• USD/JPY today: The dollar fell by 0.6% to ¥148.59, down from an opening of ¥149.47, after hitting a session high of ¥149.48.

• On Wednesday, the yen dropped by 0.7% against the dollar — its fourth loss in five sessions — reaching a three-and-a-half-month low of ¥149.54. The decline was driven by strong US economic data and a hawkish Federal Reserve meeting.

Monthly Performance

In July — which concludes with today’s price settlement — the Japanese yen has declined by 3.35% against the US dollar, making it the largest monthly loss of 2025 so far, specifically since December 2025.

This monthly loss is attributed to weaker demand for the yen as a safe haven, amid improving trade developments between the US and its key partners, and growing political uncertainty in Japan after the ruling party lost the upper house elections.

BOJ Holds Steady

As widely expected, the Bank of Japan left its current monetary policy tools unchanged on Thursday, maintaining the interest rate range at 0.50% — the highest since 2008 — for the fourth consecutive meeting.

The decision to hold rates steady was unanimous among the board members. Policymakers indicated they prefer to take more time to evaluate the impact of growing global economic risks, including rising US tariffs, on Japan’s fragile recovery.

Monetary Policy Statement

In its policy update, the BOJ reiterated its willingness to raise interest rates if economic and price conditions evolve as projected.

“The economic outlook remains surrounded by multiple risks,” the BOJ said. “In particular, how trade and other policies develop in each region — and how global economic activity and prices respond — remains highly uncertain.”

Inflation Forecasts

The BOJ raised its core CPI forecast for fiscal year 2025 from 2.2% to 2.7%, the 2026 projection from 1.8% to 1.7% (revised downward), and the 2027 estimate from 1.9% to 2.0%.

Rate Outlook

• Market pricing now reflects over a 50% chance of a 25-basis-point rate hike at the BOJ’s September meeting.

• Investors are awaiting further data on inflation, unemployment, and wage growth in Japan to recalibrate expectations.

Kazuo Ueda Speech Expected

BOJ Governor Kazuo Ueda is scheduled to speak later today to discuss the policy meeting results. His comments are expected to provide further insight into the timing and pace of future rate normalization and potential rate hikes through the remainder of the year.