The US dollar fluctuated near its one-month high on Wednesday ahead of the Federal Reserve’s monetary policy decision, while the euro appeared on track to end a six-month streak of monthly gains as investors weighed the cost of the new US-EU trade agreement.
The Japanese yen rose against the dollar following a powerful earthquake off Russia’s Kamchatka Peninsula, which triggered a tsunami and evacuation warnings across the region and along most of Japan’s eastern coastline.
Currency markets remained relatively stable as investors refrained from placing new bets ahead of key economic reports and upcoming central bank meetings in Canada, Japan, and the US.
US and Chinese officials agreed to seek an extension of their 90-day tariff truce after what both sides described as “constructive” two-day talks in Stockholm. No major breakthroughs were announced, and US officials stated that any decision to extend the truce — which ends August 12 — still rests with President Donald Trump.
The US-China discussions come on the heels of Sunday’s US-EU framework agreement, which has stirred a mix of relief and concern in Europe due to its perceived imbalance favoring the US. Investors are closely watching these trade deals as countries race to secure agreements before Trump’s self-imposed August 1 deadline.
Charu Chanana, Chief Investment Strategist at Saxo in Singapore, remarked: “Markets increasingly see these trade deals as symbolic and tactical rather than structural solutions.” She added, “With vague terms and weak enforcement mechanisms, investors are assigning less market weight to such negotiations unless backed by concrete details.”
The euro edged up to $1.1555 after falling in the first two days of the week and hitting a one-month low of $1.15185 on Tuesday. Despite a 11.7% gain year-to-date, the euro is heading for its first monthly decline in 2025.
The euro’s strength earlier this year was largely due to waning interest in the dollar, as Trump’s unpredictable trade policies pushed investors to seek alternatives.
The British pound stood at $1.3355, while the Australian dollar held steady at $0.6514 after weaker-than-expected inflation data increased the likelihood of a rate cut next month.
The US Dollar Index — which measures the dollar against six major peers — stood at 98.823, hovering near its one-month high and set to post its first monthly gain of the year.
Investor focus is now turning to central bank meetings, with the Fed widely expected to keep interest rates unchanged later on Wednesday. Fed Chair Jerome Powell’s comments are anticipated to be pivotal in determining the future direction of US monetary policy.
This meeting comes amid intensifying calls from President Trump to cut rates, along with persistent criticism from his administration aimed at Powell.
There is speculation that both Fed Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman — Trump appointees — might dissent if the Fed holds rates steady for a fifth time since December. Powell is also a Trump appointee.
Kristina Clifton, Senior Economist at Commonwealth Bank in Sydney, said: “While dissent isn’t unusual, any dissent in this week’s meeting could draw more attention given Trump’s clear stance that the FOMC should lower rates.”
She added: “Dissent in this meeting may be seen as politically motivated, which could damage the perception of the committee’s independence.”
The Bank of Japan is also expected to maintain its current policy. Markets will closely watch Governor Kazuo Ueda’s statements, as the recent US-Japan trade agreement could open the door for a potential rate hike later this year.
The yen rose 0.4% to 147.85 against the dollar and was last seen at 148.06, following news of the earthquake and tsunami in the Pacific Ocean. Investors are monitoring any possible damage to Japan’s critical infrastructure.
Christopher Wong, Currency Strategist at OCBC, noted that the yen’s strength was a reaction to the earthquake news and may have been amplified by low market liquidity.
He added: “The nightmare of the 2011 Tōhoku earthquake still lingers,” referring to the devastating quake and tsunami that struck northeastern Japan in March 2011.
