The Federal Reserve concluded its two-day interest rate meeting in the early morning of July 31st, Beijing time. Contrary to market expectations, the Fed did not make any decisions regarding its September meeting. The Fed maintained the target range for the federal funds rate at 4.25%-4.5%. This marks the fifth consecutive meeting of the Fed. Last year, the Fed cut interest rates by a cumulative 100 basis points. Previously, the market consensus was that the Fed would cut rates in September and would signal this at this meeting. The US dollar index extended its gains. The index rose 0.96% on Wednesday to close at 99.82, reaching an intraday high of 99.99 since May 29th and on track for its first monthly gain of the year.



JPMorgan Chase and Trump's thaw: The US dollar index's short-term game and long-term dilemma

JPMorgan Chase CEO Jamie Dimon has visited the White House twice in the past two months, marking a new phase in the relationship between Wall Street and the Trump administration.

During their Oval Office meeting on July 24th, the two sides engaged in dialogue on core issues such as tariffs, financial regulation, and the housing market. The participation of Treasury Secretary Benson & Melson and Commerce Secretary Lutnick underscored the policy-oriented nature of the interaction. This thaw in relations was no accident. After Trump's tariff announcement in April triggered market turmoil, Dimon publicly warned that a trade war could lead to an economic recession, a comment that directly prompted Trump to suspend most tariff plans. Dimon's recent support for some tariff policies has provided an opportunity for the two sides to find common interests.

Second-quarter GDP growth was 3%, JPMorgan Chase estimates, driven in part by companies stockpiling inventory. A compromise on auto tariffs reached between the Trump administration and the European Union could boost third-quarter GDP growth by another 0.5 percentage points.

However, the core indicator, private domestic sales, saw growth slow to 1.2%, the slowest since 2022, indicating insufficient domestic demand. More seriously, the total federal debt has reached $36 trillion, equivalent to 126% of GDP. The continued expansion of the fiscal deficit is shaking the foundation of the US dollar's credit.

Dimon raised the issue of "housing affordability" during the meeting. High interest rates have greatly restricted banks' ability to lend - the homeownership rate between African Americans and whites is 29%. If the government shifts to loose policies to stimulate mortgage lending, it may boost the economy in the short term, but it will repeat the mistakes of the subprime mortgage crisis.

Trump is considering nominating Treasury Secretary Jeffrey Bessant or economic advisor Kevin Hassett to succeed him as Fed Chair. Both advocate for a weak dollar. If the Fed shifts to easing in the future, it could boost risk assets in the short term but weaken the dollar's creditworthiness in the long term.

The current US economy is characterized by the coexistence of "superficial prosperity" and "structural weakness", and this contradiction is further amplified through the interaction between the two sides.

The pricing logic of the US dollar and its direct impact

Decreased short-term volatility: Reduced uncertainty about tariff policies drove the Bloomberg Dollar Index to rebound 2.3% in late July, partially offsetting a 10% decline in the first half of the year. JPMorgan Chase estimates that if tariffs remain in the 15%-25% range, rather than the previously threatened 50%, US companies' import costs would be reduced by approximately 30%, helping to mitigate imported inflation.

Rebalancing capital flows: Dimon emphasized the importance of free capital flows during their June meeting. JPMorgan subsequently raised its target for the MSCI Emerging Markets Index to 1,250 points, predicting that a weakening dollar would drive approximately $45 billion in capital flows to emerging markets. This statement could lead global investors to adjust their asset allocations, increasing pressure to liquidate long dollar positions.

Despite the easing of relations, the two sides remain sharply divided over monetary policy. Trump has recently publicly criticized Federal Reserve Chairman Powell, even drafting a dismissal letter. This led to a "triple drop" in US stocks, US Treasuries, and the US dollar on July 16th, with the US dollar index falling 1.8% intraday. Dimon, in a meeting on July 24th, explicitly expressed support for Federal Reserve independence, a stance that echoed JPMorgan Chase's increased safe-haven gold holdings.

JPMorgan Chase predicts that if the fiscal deficit exceeds $2 trillion in 2026, the US dollar index will fall to 92, a new low since 2018.

The wave of de-dollarization and changes in market structure

The easing of bilateral relations has failed to alter the broader trend of restructuring the global monetary system. The agreement between China and Saudi Arabia on RMB settlement of oil has reduced the proportion of dollar settlements in the Middle East from 92% in 2020 to 78% in 2025. The EU's digital euro initiative is expected to divert approximately $120 billion in international payment demand by 2027.

What is more noteworthy is that JPMorgan Chase recently increased the foreign exchange trading volume of its China business by 30% and cooperated with Chinese technology companies to develop a cross-border payment system. This "two-line layout" is weakening the US dollar's status as an international settlement currency.

The proportion of the US dollar in global central bank foreign exchange reserves has dropped from 59% in 2020 to 57%. During the same period, the proportion of RMB assets rose to 4.2%, a record high.

Shift in commodity pricing power: The trading volume of Shanghai crude oil futures RMB-denominated contracts has accounted for 18% of the global crude oil derivatives market, directly challenging the pricing dominance of WTI and Brent crude oil.

Conclusion: The Dusk and Dawn of the US Dollar

JPMorgan Chase's interaction with Trump is essentially a survival strategy for international capital amidst a wave of nationalism. In the short term, reduced policy uncertainty may drive a rebound in the US dollar. However, in the long term, structural pressures such as deteriorating economic fundamentals, eroded Federal Reserve independence, and accelerated de-dollarization are shaking the dollar's foundations. If Trump persists in his "America First" policy, the dollar could continue its decline since 2025. If the two sides reach a substantive compromise on tariffs and financial regulation, the dollar may experience a technical rebound, but it will be difficult to reverse its long-term weakening trend.