US Dollar Stabilizes After Sharp Drop, Markets Eye Fed and Trade Clarity

US Dollar Stabilizes After Sharp Decline, Markets Monitor Fed and Trade Developments

The US Dollar (USD) paused its three-day slide on Wednesday, stabilizing amid mixed market signals following a major US-Japan trade agreement and growing political pressure on Federal Reserve Chair Jerome Powell.

Trade Deal Offers Short-Term Relief

President Donald Trump announced a $550 billion trade accord with Japan, framing it as a massive win for American producers. Under the deal:

• Tariffs on Japanese goods are reduced to 15%, down from the threatened 25%.
• Japan commits to significant investments in the US economy, promising to create "hundreds of thousands of jobs."
• American businesses will gain expanded access to Japanese markets for cars, rice, trucks, and farm products.

Markets welcomed the agreement as a temporary reprieve from trade tension, ahead of the August 1 tariff deadline.

DXY Index Holds Flat After 3-Day Slide

The US Dollar Index (DXY), which tracks USD performance against a basket of major currencies, traded flat around 97.40 during Wednesday's US session. This follows a sharp drop of 1.10% earlier in the week as risk sentiment shifted.

Fed Under Fire Amid Political Pressure

While the trade deal brought momentary calm, fresh criticism from President Trump aimed at Fed Chair Jerome Powell has reignited concerns about central bank independence. Trump called Powell a "numbskull," intensifying uncertainty around future monetary policy decisions.

With no clear signals on rate direction and heightened political tension, traders are hesitant to reenter aggressive USD positions.

Outlook: Dollar May Stay Defensive

With the Fed’s credibility questioned, and the global economic outlook still uncertain, the Dollar may remain under pressure unless:

• Clear progress is made in broader US trade negotiations.
• The Fed signals hawkish policy resilience amid criticism.
• Incoming US economic data, especially housing and inflation, surprises to the upside.

Related Tredu Reads:

• Gold Stalls Near Highs as Markets Eye Fed
• USD/JPY Slips After Trade Deal, BoJ Watch Continues