Over the past couple of days, we wrote that the DXY Index could correct higher or consolidate in July after plunging more than 10% in the first half of 2025. We noted that that the reasons responsible for the USD’s depreciation have eased, i.e., record high US stocks eroding the waning US exceptionalism narrative, last Thursday’s strong US jobs report dashing hopes of an earlier Fed cut in July, renewed trade tensions from US President Donald Trump’s letters to countries warning of higher reciprocal tariff rates on August 1, US debt default risks evaporating with the lifting of the debt ceiling on July 4, and the Trump administration’s recent discomfort with the narrative of the USD losing its dominance.
To estimate the DXY’s correction or consolidation, we identified a potential descending price channel. The first objective would be 98.2 to 98.6, the mid-point levels for the rest of the month. Suppose Fed cut expectations pull back further on higher US CPI inflation readings on July 15, or that trade deals remain elusive and elevate fears of higher reciprocal tariffs on August 1. In that case, a further correction to 100.1 to 100.6 (the channel’s ceiling) cannot be ruled out. Today’s FOMC minutes will serve as a reminder of Fed Chair Jerome Powell’s expectation that tariffs will lift inflation in the coming months, providing the basis for his cautious “wait-and-see” stance. Trump’s surprise plans for higher tariffs on copper and pharmaceutical imports offset hopes for a US-EU trade deal yesterday, keeping the DXY firm at 97.5 overnight.
Following through today, we estimate the corrections in the EUR and CHF based on the above assumptions for the DXY. We noted that, on an indexed basis, the greenback has been falling against the EUR and CHF at roughly the same pace as the DXY, with the relationship tightening during the 90-day tariff pause. We are looking for the greenback to digest its steep losses before resuming its downtrend at better levels. 
We remain bearish on the USD in the longer term. History suggests that the DXY could be weaker in the second half of the year, albeit at a slower pace compared to the ~10% plunge in the first half. Another sell-off in the following year cannot be ruled out, given Trump’s policies—unilateral protectionism against rivals and allies encouraging de-dollarisation, a worrying increase in the national debt, and concerns over the Fed’s independence—that undermine the USD’s global status. Finally, Trump has been vocal about the USD’s strength and high interest rates as obstacles to advancing his MAGA agenda, particularly efforts to reshore American manufacturing.
Quote of the Day
”We cannot always assure the future of our friends; we have a better chance of assuring our future if we remember who our friends are.”
Henry Kissinger
July 9 in history
In 1971, US National Security Advisor Henry Kissinger secretly visited the People's Republic of China to negotiate a detente between the US and China.
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