The DXY Index appreciated for a third day by 1% to 98.6, its highest close since July 17. Today, the US Conference Board is expected to report that consumer confidence improved to 96.0 in July from 93.0 in June, reflecting less job insecurity and record-high US equities. The US trade deficit is expected to stabilize in June after the blowout in 1Q25 resulting from the frontloading of imports to avoid higher tariffs. While the narrower trade deficit from stabilizing imports supports a rebound in US GDP growth in 2Q25 from its contraction in 1Q25, markets remain wary of continued weakness in US exports. The USD was also firmer from anticipating dissent votes at Wednesday’s FOMC decision to keep the Fed Funds Rate unchanged at 4.25-4.50%.
Despite closing above its 50-day moving average (98.3) for the first time since February, the DXY has yet to deviate far from the 98 level over the past month. US President Donald Trump remains a threat to the Fed’s independence, given his stepped-up attacks against Fed Chair Jerome Powell. Trump’s call for a significant decline in US rates to 1% - below the European Central Bank’s 2% - implies a weaker USD, which would complement the increased access to overseas markets enabled by his trade deals. The market has not ruled out the Fed opening the door for a September rate cut, given the expectations for Friday’s nonfarm payrolls to slip closer to 100k in July after the surprise increase to 147k in June.
EUR/USD depreciated by 1.3% to slightly below 1.16 for the first time since July 17. Like the US-Japan trade deal last week, the EUR was initially relieved that the US-Europe trade deal avoided a full-scale tariff war. However, once markets absorbed the details, sentiment flipped from the reality that tariffs would still increase to 15% with the Trump administration still maintaining tariffs as a leverage tool. However, EUR/USD was still supported above 1.1570 or its 50-day moving average. While the EU-US trade agreement was framed as a standalone economic negotiation, it was interesting that President Trump stepped up pressure on Russian President Vladimir Putin with a new and shortened deadline of 10-12 days to agree to a ceasefire in Ukraine or face economic penalties. Following the US-China talks in Stockholm, US Commerce Secretary Howard Lutnick said that Trump could extend the 90-day tariff truce with China for another three months to offer breathing room for deeper and more delicate trade negotiations. Regardless of whether the trade partner is an ally (like the EU or Japan) or a strategic competitor (like China), Trump’s trade agenda is unified by the common objective to address trade imbalances, which is likely to include currency realignment to complement tariffs.
Quote of the Day
” Be Prepared... the meaning of the motto is that a scout must prepare himself by previous thinking out and practicing how to act on any accident or emergency so that he is never taken by surprise.”
Sir Robert Baden-Powell
July 29 in history
Sir Robert Baden-Powell formed the Boy Scouts in England in 1907.
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