The DXY Index should be pulled in opposite directions this week. The Fed Funds Rate is widely expected to stay unchanged at 4.25-4.50% at the July 29-30 FOMC meeting. Before the decision on the same day, US advance GDP growth is expected to rebound to an annualized 2.4% QoQ saar in 2Q25 following a 0.5% contraction in 1Q25, while PCE inflation increases to 2.5% YoY in June from 2.3% in May. During his congressional hearings on June 25-26, Fed Chair Jerome Powell told US lawmakers that the Fed was well-positioned to wait and determine whether the impact of higher tariffs on inflation and growth would be transitory or persistent.
However, there could be two dissenting votes. Trump-appointed Fed Governors Christopher Waller and Michelle Bowman have argued for a rate cut this month, reasoning that tariff-led inflation could be temporary and that the policy rate is well above neutral. Hence, attention will also fall on PCE core inflation, which is expected to stay unchanged at 2.7% YoY in June. US President Donald Trump’s pressure on Powell to cut rates is heavier and more coordinated than in previous meetings. For example, US Treasury Secretary Bessent has publicly urged a comprehensive review of the Fed’s operations and effectiveness in carrying out its dual mandate. Powell has pushed back against Trump’s claims that the Fed mismanaged the renovations of Fed buildings.
Nonetheless, the futures markets see a 64% chance of a Fed cut in September. Players will scrutinize Powell’s press conference for such a possibility that frames the decision around incoming data, particularly the labour market. Just as the stronger-than-expected US monthly jobs data drove the USD’s recovery over July 1-17, a reversal of those gains in nonfarm payrolls could bring the USD back down too.
Based on the JPY’s experience with the US-Japan last week, markets should tread carefully on the EUR regarding this morning’s US-EU trade deal. In reaching a 15% tariff rate for most European goods instead of Trump’s earlier threat of 25-30%, the deal has been welcomed as a de-escalation that removed the tail risk of a full-scale trade war. However, the trade relief may prove temporary because the increase in the tariff rate to 15% locked in more competitive losses for EU exporters. That said, EUR/USD recovered to 1.1742 last week, retracing about 75% of its depreciation from 1.1830 to 1.1555 in the first half of July. The next leg of the EUR’s recovery will hinge on the Fed signalling a broader path towards policy normalization – moving closer to its neutral rate – while the European Central Bank affirms that its rate-cutting cycle is nearing completion.
We expect the Monetary Authority of Singapore to adopt a “wait-and-see” approach at its policy review on July 30. The Singapore economy averted a technical recession – real GDP growth expanded by a stronger-than-expected 1.4% QoQ sa in 2Q25 after a 0.5% contraction in 1Q25. However, we will be looking out for hints of a third easing at the October review, given the central bank’s base case scenario for global economic activity to slow due to US-led tariffs amid dampened inflation in H2 2025. USD/SGD has been drifting lower in a price channel (last around 1.2625-1.2850) since May. EUR/SGD also bears watching if it extends its rise above 1.50.
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