Headlines
Subdued dollar firms after ECB leaves rates alone; tariffs and Fed in focus
Published by Global Banking and Finance Review
Posted on July 24, 2025
4 min readLast updated: January 22, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on July 24, 2025
4 min readLast updated: January 22, 2026
The dollar stabilized as the ECB held rates steady, shifting focus to tariffs and the Fed. Global trade impacts and economic outlook remain key concerns.
By Alden Bentley and Stefano Rebaudo
(Reuters) -The dollar traded sideways versus the euro on Thursday after the European Central Bank held rates steady, and was confined to a tight range against the yen as prospects for higher Japanese rates offset worries about political risk after Sunday's elections.
The greenback showed fractional gains late in a subdued U.S. session, with investors girding for a busy news flow next week.
The European Central Bank left its policy rate at 2%, as expected, on Thursday, taking a break after a year of policy easing to wait for clarity over Europe's future trade relations with the United States.
"The view that the ECB is probably on hold here is probably gaining a bit more traction. We've trimmed expectations for the cuts in September to certainly less than 50/50," said Shaun Osborne, chief foreign exchange strategist at Scotiabank in Toronto.
The Japanese central bank's deputy governor, Shinichi Uchida, said Tuesday's trade deal with Washington had reduced economic uncertainty, comments that fuelled optimism in the market about the potential resumption of interest rate hikes.
Analysts believe the yen will face persistent headwinds after Sunday's upper house election, with the opposition considering a no-confidence motion.
The European Union is nearing a deal that would impose a broad 15% tariff on EU goods, diplomats said. The rate, which could also extend to cars, would mirror the framework agreement the United States struck with Japan.
"The ECB faces a challenge that is quantitatively different from the BoJ's," said Thierry Wizman, global forex and rates strategist at Macquarie Group.
"The euro has appreciated by far more than the JPY so far in 2025, meaning that the disinflationary impulse from U.S. import tariffs may be greater in the EU than in Japan, or the ECB may suspect as much," he added.
PMI data showed fragility in France following budget-cut proposals there, but also resilience in Germany and other parts of the euro zone.
Data showed that German business activity continued to grow marginally in July.
"As of now, there has been very little tariff impact on the hard data," said Mohit Kumar, economist at Jefferies.
ECONOMIC FALLOUT
Meanwhile, risk assets rallied as the trade deals eased fears over the economic fallout of a global trade war.
Next week the Federal Open Market Committee meets and is expected to leave rates where they are as policy makers wait for the expected impact from tariffs on inflation and growth to show up. Traders are now pricing in a 60% chance of a quarter point September rate cut, according to CME's FedWatch tool.
A number of U.S. employment releases next week culminate with Friday's big June payrolls report, while the July Personal Consumption Expenditures Price Index and the first revision to 2nd quarter Gross Domestic Product could also move markets.
"A lot of event risk next week and not just from the Fed, we've got a lot of data next week as well, so that's probably going to shape expectations to some extent for September," Osborne said.
The euro was last off 0.03% $1.1766, near the $1.1830 high from earlier this month, which marked its strongest level in more than three years.
Against the yen, the dollar was 0.27% firmer at 146.88, having hit a two-week low earlier in the session at 145.86.
Olivier Korber, forex strategist at Societe Generale, expects the yen to strengthen further, citing support from the trade deal and prospects for higher interest rates.
Japanese Prime Minister Shigeru Ishiba denied on Wednesday he had decided to quit after a source and media reports said he planned to announce his resignation to take responsibility for a bruising upper house election defeat.
Currencies mostly shrugged off news that U.S. President Donald Trump, a vocal critic of Federal Reserve Chair Jerome Powell, will visit the central bank on Thursday, a surprise move that escalates tensions between the administration and the Fed.
The dollar index, which measures the greenback against a basket of six currencies including the euro and yen, rose 0.17% to 97.36.
In cryptocurrencies, bitcoin rose 1.17% to $119,376.30. Ethereum rose 4.62% to $3,735.62.
(Reporting by Stefano Rebaudo; Editing by Ed Osmond, David Holmes and Nick Zieminski)
The European Central Bank left its policy rate at 2%, as expected, taking a break after a year of policy easing.
The dollar traded sideways versus the euro and showed fractional gains against the yen, confined to a tight range.
Next week, the Federal Open Market Committee meets, and several U.S. employment releases are expected, culminating with the June payrolls report.
Analysts believe the disinflationary impact from U.S. import tariffs may be greater in the EU than in Japan, as the ECB faces different challenges.
The yen is expected to face persistent headwinds after Sunday's upper house election, with analysts predicting it may strengthen further due to a recent trade deal.
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