Fed Steers Clear of Cut Talk, Market Reprices
The Federal Reserve left rates unchanged at 4.25–4.5% and gave no signal that cuts are on the table. Core PCE for June rose 0.3% on the month and 2.6% year-over-year, slightly above forecasts. Chair Jerome Powell stressed that decisions would be based on incoming data, saying, “We have made no decisions about September.”
Traders pulled back on near-term rate cut bets, supporting the dollar. At the same time, Treasury yields eased modestly: the 10-year fell to 4.336% while the 2-year dipped to 3.928%. Despite softer yields, dollar strength held—pointing to support from positioning, growth differentials, and risk sentiment rather than just yield spreads.
BOJ Signals Shift, but Yen Can’t Hold Gains
The Bank of Japan kept its policy rate at 0.5% but lifted inflation forecasts through 2027. Governor Kazuo Ueda cited persistent food price increases as a factor influencing expectations, raising speculation about a potential rate hike later this year.
The yen initially rallied, but gains faded. USD/JPY jumped to 150.52 by session close after swinging between small losses and gains. While market pricing now reflects a higher probability of BOJ tightening, traders appear to be waiting for more concrete action before adjusting positions further.
Trade Developments Help Remove a Key Risk Premium
Washington’s August 1 tariff deadline remains in focus, but with eight new trade deals announced, including a 15% tariff agreement with South Korea, the broader risk has eased. That clarity has supported broader dollar strength. Meanwhile, the euro remains under pressure. EUR/USD bounced to 1.1445 after hitting a seven-week low, but is still down nearly 3% this month.
Rabobank’s Jane Foley noted the euro had become overbought earlier this year and that recent trade developments “delivered a dose of reality for the European side.” U.S. assets, by contrast, have continued to attract inflows.
