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Strong U.S. economic data supported the dollar's second consecutive week of gains, while policy uncertainty remains a potential downside risk

2025-07-18 11:16:56

The dollar index strengthened, supported by better-than-expected U.S. economic data

The dollar index, which measures the dollar against six major currencies, remained at 98.456, with a weekly increase of 0.64%, continuing the 0.91% rise last week. This week's highest point was 98.951, the highest since June 23. The strong rebound in U.S. retail sales in June and the number of first-time unemployment claims fell to a three-month low, providing support for the dollar.
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The economic data reinforced the market's judgment that the Federal Reserve will delay its interest rate cut.

The consumer price index rose by the most in five months in June, highlighting the upward pressure on prices from tariffs. Traders now expect rate cuts of about 45 basis points this year, slightly narrower than the 50 basis points seen at the beginning of this week. This shift in expectations has allowed the dollar to benefit in the short term from the resilience of the U.S. economy.

"Investor sentiment towards U.S. dollar assets could still be further dampened if uncertainty about U.S. policymaking continues to rise," Commonwealth Bank of Australia analysts said in a client note.

This week, there were reports that Trump planned to replace Federal Reserve Chairman Powell. Although the dollar rebounded partially after being under short-term pressure due to Trump's denial of the news, market concerns about his repeated intervention in monetary policy have not been eliminated. Trump had previously said that the US interest rate should be lowered to below 1%, while the current interest rate remains in the range of 4.25%-4.5%.

USD/JPY remained at 148.60, close to Wednesday's 3-1/2-month high of 149.19. Market expectations that Japan's ruling coalition may lose its majority in Sunday's Senate elections will trigger policy uncertainty that could adversely affect tariff negotiations with the United States. USD/JPY has risen 0.73% this week.

The euro rebounded 0.25% to 1.1626 against the U.S. dollar, breaking away from the three-week low of 1.1556 hit on Thursday, but still fell 0.59% this week; the pound rose 0.13% to 1.3436 against the U.S. dollar, narrowing the weekly decline to 0.41%. Overall, European currencies are still constrained by the strong U.S. dollar and the weak European economy.
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Editor's opinion:
Although the dollar has been boosted by U.S. economic data in the short term, policy-driven factors are becoming increasingly complex. From Trump's frequent interference in the independence of the central bank to Congress's promotion of stablecoin legislation, U.S. dollar assets are facing a deeper test of trust.

If political and fiscal risks continue to ferment, the future upside of the US dollar may be limited. In the short term, we need to focus on the results of the Japanese election and its chain reaction on the yen and regional markets.
Risk Warning and Disclaimer
The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.

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