Dollar heads for biggest weekly drop in a month as focus shifts to Fed, BOJ meets

CNBC

25-07-2025

The dollar steadied near two-week lows on Friday, on track for its biggest weekly drop in a month, as investors contended with U.S. tariff negotiations ahead of a deadline while looking ahead to central bank meetings next week for clues on policy.
Both the U.S. Federal Reserve and the Bank of Japan are expected to hold rates at next week's policy meetings, but traders are focusing on the subsequent comments to gauge the timing of the next move.
"Next week's BOJ policy meeting will be closely watched for hints on the timing of the next rate hike," said Carol Kong, currency strategist at Commonwealth Bank of Australia.
The prospect of rate hikes by the BOJ had improved, she added, after a trade deal struck with the United States this week lowered tariffs to 15% on auto imports from Japan.
The yen stood at 147.10 to the dollar, on course for a weekly gain of 1%, its strongest such performance since mid-May.
A majority of economists in a Reuters poll this week expect Japan's central bank to raise interest rates by 25 basis points this year.
The dollar index, which measures the U.S. currency against six other units, was at 97.448, set for a drop of 1% this week, its weakest performance in a month.
On Thursday, the European Central Bank left its policy rate at 2%, as expected, in a break from a year of policy easing, to await clarity over future U.S. trade ties after the European Commission said a negotiated solution was in reach ahead of the August 1 deadline.
The euro was little changed at $1.1754 in early trade, but not far from $1.183, the near four-year high it touched at the start of the month. The euro is up 13.5% this year as tariff policies take the shine off the dollar.
Progress on trade deals has also raised market hopes for talks with China, after U.S. Treasury Secretary Scott Bessent said officials of both countries would meet in Stockholm next week to discuss an extension of the deal negotiation deadline.
The Australian dollar has been boosted by the rise in risk appetite after the trade deals and was last at $0.6593, hovering near an eight-month high touched on Thursday.
Trump's Fed Visit
Donald Trump locked horns on Thursday with Fed Chair Jerome Powell during a rare presidential visit to the central bank, criticizing the cost of renovating two historical buildings at its headquarters and pressing the case for lower interest rates.
Markets mostly shrugged off the visit, however, having become accustomed to Trump's repeated tirades against Powell and the Fed.
"Trump's Fed visit was spectacle over substance," said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities.
"The market's focus is firmly on next week's Fed meeting. We expect Powell to repeat a patient, data-dependent policy outlook with flexibility but (he) is unlikely to commit to cuts."
At their two-day rate-setting meet, the central bank's 19 policymakers are widely expected to leave their benchmark interest rate in the range of 4.25% to 4.50%. Traders are pricing in 43 basis points of rate cuts by the end of 2025.
ANZ strategists expect the Fed to cut rates by 25 basis points in September and again in December.
"Were it not for tariff uncertainty, we judge that rate cuts would already have resumed," they said in a note.
"The labor market is weakening, service price disinflation is well established, demand growth has slowed and there is no discernible evidence that higher tariffs are spilling into a broader inflation problem."
In cryptocurrencies, bitcoin eased 0.79% to $117,840, while Ethereum was 2% lower at $3,655.