The US Dollar Index (USD Index) recorded gains in mid-trading on Monday, July 28, the opening session of the week, benefiting from increased risk appetite in markets following the US-EU trade agreement amid anticipation of the Federal Reserve meeting and US employment figures. The Dollar Index rose by about 0.60%, trading at 97.93, while the euro declined by more than 100 points, affected by the rising dollar and declining trade concerns.
US President Donald Trump announced yesterday, Sunday, that an agreement had been reached with the European Union, imposing tariffs of up to 15% on most European goods, including cars, in exchange for European investments worth an additional $600 billion in the United States and purchases of American energy worth $750 billion. This agreement has supported the overall market sentiment and eased investor concerns over its direct impact on the US and European economies. The US Federal Reserve, which meets on Tuesday and Wednesday and will announce the results of its meeting at the end of the US session on Wednesday, is leading the events of this week. The bank is expected to keep interest rates unchanged at 4.5% for the fifth consecutive meeting this year, following a quarter-basis point cut in December of last year.
Despite the pressure on the US Federal Reserve and Governor Jerome Powell from President Trump and the Treasury Secretary, and the threat of his dismissal before the end of his term in May of next year, the Fed has maintained interest rates at 4.5% since last December’s meeting. Powell indicated more than once that he was concerned about the impact of tariffs and the tax law on inflation and that he preferred to wait.
So far, according to the CME’s FedWatch tool, markets are pricing in a near-certainty rate hike at Wednesday’s meeting, and are pricing in two interest rate cuts for the remainder of the year. They are pricing in a 62% chance of a cut in September and more than 60% chance of a cut in December, with the percentage of a 50 basis point cut rising to 20% in December. Markets are awaiting the US Department of Labor’s Nonfarm Payrolls (NFP) data for July at the end of trading on Friday, August 1. Market expectations indicate that the US economy added between 110,000 and 100,000 jobs in July, compared to 147,000 jobs added in June. The unemployment rate is expected to rise to 4.2% from 4.1%, and wages are expected to rise by 0.3% month-on-month and 3.8% year-on-year.
The euro is trading at 1.1654, down more than 100 points against the dollar, while the pound is trading at 1.3411. The Japanese yen is down more than 80 points, trading at 148.40.