The expectation of interest rate cuts has weakened, and the US dollar is expected to achieve its first monthly increase this year

The US dollar fluctuated near a two-month high on Thursday, after Federal Reserve Chairman Jerome Powell maintained his cautious stance on interest rate cuts, while the Bank of Japan kept interest rates unchanged but raised its inflation forecast. With the uncertainty surrounding Trump’s tariffs gradually dissipating, July is expected to be the first month this year to achieve positive monthly growth for the dollar.

According to a previous article by Jianwen, after a two-day monetary policy meeting, the Bank of Japan unanimously voted to maintain the short-term interest rate at 0.5%, but raised its core consumer inflation forecast for this fiscal year from 2.2% three months ago to 2.7%. Following the announcement of this decision, the yen experienced short-term fluctuations and then significantly appreciated, rising 0.5% against the dollar to 148.78.

Overnight, Federal Reserve Chairman Powell did not provide guidance on a rate cut in September during the FOMC press conference, stating that tariffs and inflation remain full of uncertainties, it is still too early to assert a rate cut in September.

The dollar index stabilized around 99.7, not far from the two-month high set in the previous trading day, with a cumulative increase of about 3.2% this month. Market focus has now shifted to the tariff deadline on August 1, when countries that fail to reach a trade agreement with the United States will face high tariffs.

The Fed's Hawkish Stance Supports Dollar Strength

The strong performance of the dollar this month is mainly attributed to the Fed's hawkish stance and the resilience of the US economy. According to a previous article by Jianwen, the preliminary annualized quarter-on-quarter real GDP for Q2 in the US was 3%, better than expected. A few hours later, Fed Chairman Powell reiterated that it is still too early for rate cuts, further boosting the dollar.

Rodrigo Catril, senior currency strategist at the National Australia Bank, pointed out: "We see the classic correlation still at play, with the hawkish Fed pushing up short-term yields and the dollar, while the stock market is under pressure, and the Fed's credibility may also be strengthened as the market believes the Fed Chairman still has control over the situation."

The dollar not only consolidated its position but also gained some upward momentum. Earlier this year, Trump's chaotic tariff policies and concerns over the dollar's decline had weakened the currency, leading to its worst start-of-year performance since the floating exchange rate period. These concerns have now eased, alleviating pressure on the dollar.

Other Major Currencies Generally Under Pressure

Against the backdrop of a strong dollar, other major currencies are generally facing downward pressure The euro rose 0.1% to $1.1412, but previously slid to a seven-week low in the previous trading day, with a monthly decline of 3.2%. The pound hovered near a two-and-a-half-month low, currently at $1.3255, with a monthly decline of nearly 3.5%.

The Australian dollar rose 0.3% to $0.6454, but had previously fallen more than 1% on Wednesday, with a cumulative decline of nearly 2% this month. The New Zealand dollar rose 0.3% to $0.5912, but is expected to decline about 3% this month