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2025-07-29 18:23:07
[Fed Storm Coming: A Major Reversal in the US Dollar Exchange Rate?] ⑴ On July 29th, the market's focus was on the Federal Reserve. This week's statement and Chairman's speech will directly impact the sensitive nerves of global currencies. ⑵ With the increasing likelihood of an interest rate cut this year and expectations of a January rate cut swirling, the US dollar faces a critical juncture. ⑶ Investors' bets on a falling dollar hinge on whether the Fed can reinforce its signal of two rate cuts, a widely held consensus among economists. ⑷ Although no actual action will be taken in July, the subsequent policy statement and Chairman Powell's comments will be crucial, particularly his previous suggestion that Trump's tariff rhetoric could trigger inflation. ⑸ Since then, the foreign exchange market has calmed down, highlighting the importance of interest rate differentials. This could boost demand for carry trades and provide support for the previously sold-off US dollar. ⑹ Given that US interest rates are significantly higher than those in Japan and the Eurozone, traders holding short US dollar positions will face higher waiting costs if US policymakers remain concerned about inflation. ⑺ US inflation has risen from 2.4% to 2.7%, further deviating from the 2% target. Such concerns could prompt profit-taking, supporting the US dollar. ⑻ Especially given the large short positions in the euro and yen against the dollar, the dollar's support for these two major currencies will be even more significant. ⑼ Due to their large trading volumes, any support from profit-taking in the euro and yen could have a significant impact on less liquid but bullish currencies such as the Mexican peso, Brazilian real, New Taiwan dollar, Singapore dollar, Malaysian ringgit, and Thai baht.
