Forex

The U.S. dollar surged on Tuesday, reaching its strongest level in over five weeks, as global traders adjusted positions ahead of a data-heavy week that could shape expectations around interest rates and economic momentum.
🔹 The Bloomberg Dollar Spot Index rose by 0.3%, climbing to its highest level since June 23. The greenback strengthened against all G10 currencies, with the euro suffering the steepest losses.

📉 Euro Weakens After U.S.-EU Trade Deal
European currencies came under pressure following the announcement of a new trade agreement between the EU and the United States over the weekend. Rather than calming markets, the deal triggered renewed concerns about the eurozone’s economic outlook. As a result, the euro fell to its lowest level in more than a month, further fueling dollar momentum.

📊 Bond Yields Slip, Fed Expected to Hold Rates Steady
Ahead of the Federal Reserve's policy meeting, U.S. Treasury yields edged lower:
🔹 The 10-year yield dipped by 1.6 basis points to 4.404%

🔹 The 30-year yield fell 2.1 basis points to 4.944%

🔹 The 2-year yield held steady at 3.92%
According to the CME FedWatch tool, traders are assigning a 97% probability that the Fed will keep interest rates unchanged at the current range of 4.25–4.5%.
Economist Ed Yardeni stated, “It’s likely that nothing major will happen.” The key to watch will be whether the FOMC continues to emphasize it’s "in no rush to cut rates" or signals a potential shift.

🔍 Focus Shifts to Inflation, Jobs, and Trump Tariffs
Traders are closely watching this week’s upcoming U.S. economic indicators:
🔹 Tuesday’s consumer confidence and JOLTS job openings data

🔹 Thursday’s PCE index – the Fed’s preferred inflation gauge, expected to edge up from 2.3% to 2.4% year-over-year
Inflation figures are also expected to reflect the impact of tariffs, as President Trump pushes forward with his trade agenda. Meanwhile, Commerce Secretary Howard Lutnick said a 90-day extension of the China truce is likely – which may ease some inflation concerns if new tariffs are delayed.

📈 Markets Adjust to the “New Reality”
The dollar has rebounded from early July losses, as markets adapt to Trump’s evolving trade policies. Currency strategists say market sentiment has shifted significantly:
“At least for now, the FX market’s focus has moved from trade uncertainty to U.S. economic resilience,” said Derek Halpenny, head of global markets research at MUFG. “This is clearly helping to unwind short-dollar positions built up earlier this year.”

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