The U.S. dollar edged down modestly on Wednesday, retreating from earlier gains recorded this week ahead of the Federal Reserve’s upcoming policy decision. Meanwhile, the euro is poised to record its first monthly loss of 2025.
At 03:00 ET (08:00 GMT), the Dollar Index, which measures the greenback against six major currencies, slipped 0.1% to 98.542. The index remains close to a one-month peak and is on track for its first monthly advance this year.
Fed’s Policy Meeting Nears Conclusion
The dollar has enjoyed strong momentum this month, supported by the U.S.-EU trade agreement, strategic positioning shifts, and month-end market flows. Yet, analysts at ING caution, “these factors should start to fade now, shifting all the attention to data and the Fed.” They add, “Before diving into the U.S. calendar, it’s worth noting that the positioning squeeze means the dollar is in a less oversold position and therefore faces more balanced risks.”
The Federal Reserve wraps up its two-day meeting later Wednesday. While interest rates are widely expected to remain steady, investors will closely scrutinize Chair Jerome Powell’s remarks for clues on future policy direction — especially amid persistent pressure from U.S. President Donald Trump for rate cuts.
Data released Tuesday revealed declines in U.S. job openings and hiring for June, suggesting a cooling labor market ahead of the critical July jobs report due Friday. Later Wednesday, markets will digest private payrolls figures for July and the flash estimate of Q2 GDP. Economists forecast a rebound with growth near 2.5% for April to June, following a 0.5% contraction in Q1.
Euro Faces Pressure for Monthly Loss
In European markets, EUR/USD inched up 0.1% to 1.1553, trading just above its one-month low from the previous session, and set for its first monthly decline in 2025. Although the euro has gained more than 11% this year, buoyed by dollar weakness tied to Trump’s unpredictable trade policies, it now faces some headwinds.
The flash Q2 growth estimate for the eurozone, due later Wednesday, will be closely watched for signals on the European Central Bank’s next moves. Earlier data showed the French economy expanded 0.3% in Q2, beating expectations as household spending surged. Conversely, Germany’s economy, the eurozone’s largest, contracted 0.1% over the same period.
Overall, the eurozone is expected to report flat growth for Q2 as the export boost seen in Q1 fades. ING analysts note, “The stark divergence in growth news between the US and Europe should underpin EUR/USD bearish momentum in our view, and there is a good chance of a break below 1.150.”
GBP/USD climbed 0.1% to 1.3363, with sterling holding just above a two-month low.
BOJ Meeting in Focus
USD/JPY fell 0.4% to 147.87 after recent sharp gains, as attention turns to the Bank of Japan’s Thursday meeting. The BOJ is widely anticipated to keep rates unchanged and maintain a cautious stance on tightening amid economic and political uncertainties.
AUD/USD eased 0.1% to 0.6510 following slightly cooler-than-expected inflation figures for Q2. The data showed further easing in inflation from the previous quarter, with core inflation remaining within the Reserve Bank of Australia’s 2%-3% target range. June’s monthly CPI also dropped more than expected. Softer inflation pressures provide the RBA with additional room to cut rates, following its surprise decision to hold steady in July.
USD/CNY moved marginally lower to 7.1764, with Thursday’s PMI data expected to reflect some improvement after recent de-escalation in U.S.-China trade tensions.
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