Forex Today: US Dollar stabilizes after post-Fed volatility, eyes on BoE and US GDP data

US Dollar Price This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Euro.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.44%	-0.03%	-0.05%	-0.23%	0.75%	0.03%	-0.03%
EUR	0.44%		0.39%	0.41%	0.21%	1.21%	0.47%	0.41%
GBP	0.03%	-0.39%		-0.11%	-0.19%	0.81%	0.08%	0.01%
JPY	0.05%	-0.41%	0.11%		-0.20%	0.79%	0.07%	-0.08%
CAD	0.23%	-0.21%	0.19%	0.20%		0.97%	0.28%	0.20%
AUD	-0.75%	-1.21%	-0.81%	-0.79%	-0.97%		-0.72%	-0.80%
NZD	-0.03%	-0.47%	-0.08%	-0.07%	-0.28%	0.72%		-0.07%
CHF	0.03%	-0.41%	-0.01%	0.08%	-0.20%	0.80%	0.07%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

The Federal Reserve left its policy rate unchanged in the range of 3.5%-3.75% for the fifth consecutive meeting in July but three Fed officials dissented in favor of a quarter-point rate hike. Although the rate decision came in line with the market expectation, the immediate reaction caused the USD to weaken as markets saw about a 30% chance of a surprise rate hike heading into the event.

Fed Chair Kevin Warsh adopted a hawkish stance in the post-meeting press conference and helped the USD find a foothold. After losing more than 0.5% on Wednesday, the USD Index stages a rebound early Thursday and stays at around 101.00, rising about 0.2% on the day.

Fed’s Warsh doubles down on 2% goal, keeping Dollar bulls engaged

Warsh’s post-meeting press conference tone was notably more forceful than the established baseline, with a 7/10 FXS Speechtracker score versus a historic 6/10, underscoring a firmer commitment to the inflation fight. The repeated insistence that “only one target and it is 2%” and “we will deliver the 2% target,” alongside remarks that inflation “cannot be cured in 9 weeks” and that the committee “will not hesitate to act,” signals a resolute, patient hawkish stance despite acknowledging “impressive resilience” in the economy. The emphasis on trend over short-term data, higher nominal and real yields, and a robust, non-inertial policy debate points to a Fed comfortable with tight conditions for longer.

The FXS Fed Sentiment Index jumped by +18.94 points to 147.58, firmly in hawkish territory and well above the neutral 100 threshold, aligning with the stronger-than-usual FXS Speechtracker score. This sizeable move reflects markets interpreting Warsh’s unwavering 2% rhetoric, readiness to act, and focus on underlying inflation dynamics amid shocks as reinforcing expectations for a prolonged restrictive stance, a configuration that should continue to underpin the Dollar on a relative basis.

Tensions in the Middle East remain high in the second half of the week, with the US launching a "heavy wave of strikes," targeting southern Iran, including Bandar Abbas, Kish and Qeshm Island. Reportedly, a US-owned vessel caught fire in a suspected drone strike at an Egyptian port but Egyptian authorities have not announced confirmed the cause. Crude Oil prices continues to push higher on Thursday, with the barrel of West Texas Intermediate rising about 1% on the day above $84, after gaining nearly 7% on Wednesday.

The BoE is forecast to maintain its bank rate at 3.75% after the July meeting. After rising more than 0.5% on Wednesday, GBP/USD stays in a consolidation phase below 1.3350 in the European morning on Thursday.

Pound volatility risk builds as Rabobank flags EUR/GBP upside bias

Rabobank’s Jane Foley warns that the political backdrop could increasingly weigh on the Pound in the months ahead, noting that welfare reform and emerging intra-Labour tensions may unsettle investors. The bank argues that “this would likely be a source of volatility for the pound in the coming months,” adding that “it is possible that Burnham’s honeymoon with voters, Labour MPs and the markets will run out of steam into the autumn, if not before.” Against a backdrop of soft UK inflation and expectations that the BoE will remain on hold, Rabobank cautions that “given the potential for disappointment over a lack of rate rises from the Bank this year, coupled with the likelihood of political friction over budget cuts, we see risk of an upside bias in EUR/GBP towards 0.87 on a 3-month view.”

USD/JPY edges higher and trades slightly above 163.50 after posting marginal losses on Wednesday. Japan's Finance Minister Satsuki Katayama said that officials proposed no ceiling on next year’s budget requests, adding that the government needs to do year-on-year comparisons in budget size, as the initial budget could be larger than previous years, and the market could overreact to that.

Gold (XAU/USD) climbed above $4,100 during the American trading hours on Wednesday but retreated below that level before closing the day with a nearly 1% gain at around $4070. XAU/USD stays under bearish pressure in the European morning on Thursday and trades below $4,050.

Gold bid holds as Fed response seen too timid on inflation

Analysts at Commerzbank note that the recent move higher in Gold has been accompanied by a pronounced back-up in the long end of the US curve, as "longer-dated yields rose sharply as investors judged the Fed's response insufficient to contain persistent inflation." They argue that the central bank’s more cautious communication stance, with reduced forward guidance, is unlikely to calm markets in the near term, warning that "this approach is likely to keep market volatility elevated as investors reassess the policy outlook."

Central banks FAQs

What does a central bank do?

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

What does a central bank do when inflation undershoots or overshoots its projected target?

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

Who decides on monetary policy and interest rates?

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Is there a president or head of a central bank?

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

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