US Dollar Performance
The US dollar index slipped 1.3% for July, marking its weakest monthly showing since April, and settled at 99.83. This decline translated into a more than 1% drop in the greenback’s value against major peers for the month.
US Inflation and Federal Reserve Decision
July‑released US inflation data covering June showed softer readings across the consumer price index (CPI), producer price index (PPI) and the Federal Reserve’s preferred personal consumption expenditures (PCE) price index. The moderation was largely attributed to a slide in global oil prices during June. However, oil prices rebounded in July after a collapse in Middle East diplomacy, reigniting inflationary pressures ahead of the Federal Open Market Committee (FOMC) meeting.
The FOMC ultimately kept the federal funds rate unchanged, but three members – Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan – dissented and voted for a 25‑basis‑point hike, citing inflation as the primary concern. Fed Chair Kevin Warsh provided limited guidance, leaving markets disappointed. Treasury yields rose sharply throughout July, reflecting heightened rate‑jitter sentiment.
On the dissenters’ statements, each emphasized that inflation dynamics warranted a tighter stance. Senior economist José Torres of Interactive Brokers noted that bond vigilantes were “confused” by the Fed’s mixed signals and warned that failure to hike could worsen fixed‑income market dissatisfaction.
Eurozone and Other Major Currencies
The euro inched up 0.1% to $1.1537, posting roughly a 1% gain for July. Eurozone headline inflation accelerated to 2.9% in July from 2.8% in June, driven mainly by higher oil prices; underlying inflation (core CPI) rose to 2.5% and services inflation to 3.3%. A stronger‑than‑expected second‑quarter GDP print reinforced expectations that the European Central Bank would raise rates at its September meeting, with markets pricing in more than two ECB hikes by early next year.
The Japanese yen strengthened for a second consecutive day, helping the USD/JPY pair record its worst weekly performance since early August 2024. Reports indicated that the Japanese government intervened the previous day by buying yen and selling dollars, while US authorities conducted a “rate check,” a move often preceding intervention. The Bank of Japan (BoJ) left its benchmark overnight call rate unchanged at 1.0% after an 8‑1 vote; Hajime Takata was the sole dissenter, advocating an additional 25‑basis‑point hike. The BoJ also trimmed its core CPI inflation outlook and modestly raised its GDP outlook for the current year, citing government support as a cushion for growth and price stability.
The British pound added 0.1% to settle at $1.3484, delivering a 1.7% advance for the month.
Contributors
The article was compiled by Ambar Warrick, Pranav Kashyap, and Jaiveer Shekhawat.