empty
04.07.2025 12:48 AM
The Dollar Sent the Fed on Vacation

The labor market report confirmed the prevailing narrative in the market: trade in a way that benefits Donald Trump. In 2023–2024, discussions of American exceptionalism led to a rise in the dollar, which was accompanied by a surge in U.S. stock indices. At the beginning of 2025, the crowd followed the principle of "sell American." The US dollar declined in tandem with the S&P 500. Since May, their paths have diverged, with the U.S. President playing a key role.

During his first term, stock indices were Trump's benchmark of effectiveness as head of state. Nothing has changed since. Trump and his team take every opportunity to make bullish comments on the S&P 500. The most recent example was his social media announcement of a trade deal with Vietnam. Despite Vietnam agreeing to pay massive tariffs of 20–40%, investors continue to buy U.S. stocks.

Labor Market Indicators Performance

This image is no longer relevant

The June U.S. employment report added fuel to the fire. The employment figure rose by 147,000, exceeding the forecasts of Bloomberg experts. Not a single analyst predicted a drop in the unemployment rate to 4.1%. These results signal the strength of the U.S. economy, support the ongoing S&P 500 rally, and allow the Federal Reserve to take a break until the end of the summer.

The futures market has almost completely stopped believing in a Fed rate cut in July — before the jobs report, the odds were 1 in 4. Derivatives pricing shows a lowered probability of monetary easing, allowing EUR/USD bears to counterattack.

Projected Fed Rate Change Dynamics

This image is no longer relevant

However, the music for EUR/USD sellers didn't play for long. Investors remembered that Trump does not want a strong dollar. According to Deutsche Bank, to improve the current account balance to levels desired by the White House, a 30–35% depreciation of the U.S. dollar is needed. As a result, bulls bought the dip, just as the crowd consistently buys S&P 500 dips.

According to Morgan Stanley, the dollar index decline is merely in intermission, not the finale. Despite the worst first-half performance since 1973, the USD remains at historically high levels. The average EUR/USD exchange rate over the last two decades stands at 1.22. On Thursday, the pair traded several figures below that.

This image is no longer relevant

The Fed may wait until September to cut rates. However, other central banks have already ended their easing cycles or are nearing the end of theirs. The Fed, by contrast, is likely to resume monetary expansion, which is negative for the U.S. dollar.

From a technical perspective, on the daily chart, EUR/USD shows an attempt by the bears to stage a counterattack. However, there's no reason to doubt the strength of the uptrend. A rebound from 1.1695 or a return above 1.1800 would signal the initiation of long positions on the euro against the U.S. dollar.

Marek Petkovich,
Analytical expert of InstaForex
© 2007-2025
Summary
Urgency
Analytic
Igor Kovalyov
Start trade
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

XAU/USD. Analysis and Forecast. Gold is supported by moderate USD weakness and trade-related uncertainty

Today, gold is trading higher, remaining within a sideways trend. Late Thursday, Federal Reserve official Christopher Waller stated that rising risks to the economy could justify a key rate

Irina Yanina 19:15 2025-07-18 UTC+2

AUD/USD. Analysis and Forecast

Today, the AUD/USD pair climbed above the key psychological level of 0.6500, attempting to confirm its recent positive momentum. The main driver behind the Aussie's rise is the weakening

Irina Yanina 13:49 2025-07-18 UTC+2

USD/CAD. Analysis and Forecast

Today, Friday, the USD/CAD pair is pulling back from a three-week high near 1.3775 recorded yesterday. At the moment, prices are trading slightly below the 1.3730 level, showing a modest

Irina Yanina 13:38 2025-07-18 UTC+2

The European Central Bank May Postpone Its Rate Cut Until December

While the euro attempts to stage a correction against the U.S. dollar, a survey of economists suggests that the European Central Bank may delay its final interest rate cut until

Jakub Novak 11:37 2025-07-18 UTC+2

Powell Responds to White House Criticism

Lately, Federal Reserve Chair Jerome Powell has faced increasing pressure, coming under fire from lawmakers, the White House, and U.S. President Donald Trump. In a letter sent on Thursday, Powell

Jakub Novak 11:26 2025-07-18 UTC+2

The U.S. Begins Regulating the Digital Currency Market (Potential for a Correction in Bitcoin and EUR/USD)

The U.S. House of Representatives has passed bills establishing the first federal framework for dollar-backed stablecoins and setting regulations for other digital currencies. The idea of regulating the cryptocurrency market

Pati Gani 09:28 2025-07-18 UTC+2

The Market Favors a Weak Dollar

What could be better for the S&P 500 than a Federal Reserve rate cut amid a still-strong economy? A series of positive labor market and retail sales data, combined with

Marek Petkovich 09:28 2025-07-18 UTC+2

What to Pay Attention to on July 18? A Breakdown of Fundamental Events for Beginners

Several macroeconomic reports are scheduled for release on Friday, but none of them are of major importance. The only noteworthy release is the University of Michigan Consumer Sentiment Index

Paolo Greco 06:13 2025-07-18 UTC+2

GBP/USD Overview – July 18: Is the Market Tired of the Dollar and Trump?

The GBP/USD currency pair once again leaned toward decline on Thursday. After the British pound strengthened on Wednesday evening following another report about Powell's dismissal, the dollar quickly recovered. However

Paolo Greco 03:56 2025-07-18 UTC+2

EUR/USD Overview – July 18: Trump Will Keep Trying to Fire Powell for Another Year

The EUR/USD currency pair continued its steady decline throughout Thursday. As a reminder, the forex market experienced an "explosion" on Wednesday evening. Donald Trump once again attempted to either fire

Paolo Greco 03:56 2025-07-18 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.