Dollar Holds Steady after ECB Leaves Rates Alone, Tariffs and Fed in Focus

Asharq Al-Awsat

24-07-2025

The dollar traded sideways against the euro on Thursday after the European Central Bank held rates steady, and was wedged between prospects for higher Japanese rates that supported the yen and worries about political risk after Sunday's elections.
The European Central Bank left interest rates steady at 2%, as expected, on Thursday, taking a break after a year of policy easing to wait for clarity over Europe's future trade relations with the United States, Reuters reported.
"The view that the ECB is probably on hold here is probably gaining a bit more traction. We've trimmed expectations for the cuts in September to certainly less than 50/50," said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto.
The Japanese central bank's deputy governor, Shinichi Uchida, said Tuesday's trade deal with Washington had reduced economic uncertainty, comments that fuelled optimism in the market about the potential resumption of interest rate hikes.
Analysts believe the yen will face persistent headwinds after Sunday's upper house election, with the opposition considering a no-confidence motion.
The European Union is nearing a deal that would impose a broad 15% tariff on EU goods, diplomats said. The rate, which could also extend to cars, would mirror the framework agreement the United States struck with Japan.
"The ECB faces a challenge that is quantitatively different from the BoJ's," said Thierry Wizman, global forex and rates strategist at Macquarie Group.
"The euro has appreciated by far more than the JPY so far in 2025, meaning that the disinflationary impulse from US import tariffs may be greater in the EU than in Japan, or the ECB may suspect as much," he added.
PMI data showed fragility in France following budget-cut proposals there, but also resilience in Germany and other parts of the euro zone.
Data showed that German business activity continued to grow marginally in July.
"As of now, there has been very little tariff impact on the hard data," said Mohit Kumar, economist at Jefferies.
ECONOMIC FALLOUT
Meanwhile, risk assets rallied as the trade deals eased fears over the economic fallout of a global trade war.
Next week the Federal Open Market Committee meets and is expected to leave rates where they are as policy makers wait for the expected impact from tariffs on inflation and growth to show up.
A number of US employment releases next week culminate with Friday's big June payrolls report, while the July Personal Consumption Expenditures Price Index and the first revision to 2nd quarter Gross Domestic Product could also move markets.
"A lot of event risk next week and not just from the Fed, we've got a lot of data next week as well, so that's probably going to shape expectations to some extent for September," Osborne said.
The euro was 0.17% firmer at $1.1786, not far from $1.1830 it hit earlier this month, which marked its strongest level in more than three years.
Against the yen, the dollar was 0.07% weaker at 146.39, and hit a fresh 2-week low earlier in the session at 145.86.
Olivier Korber, forex strategist at Societe Generale, expects the yen to strengthen further, citing support from the trade deal and prospects for higher interest rates.
Ishiba denied on Wednesday he had decided to quit after a source and media reports said he planned to announce his resignation to take responsibility for a bruising upper house election defeat.
Currencies mostly shrugged off news that US President Donald Trump, a vocal critic of Federal Reserve Chair Jerome Powell, will visit the central bank on Thursday, a surprise move that escalates tensions between the administration and the Fed.
The dollar index, which measures the greenback against a basket of six currencies including the euro and yen, was off 0.03% at 97.17.
In cryptocurrencies, bitcoin gained 0.33% to $118,391.37. Ethereum rose 2.14% to $3,647.18.