**USD Slides as Fed Comments Stir Dovish Outlook: What’s Next for Forex Markets?**
*Adapted and expanded from the original article by Mitrade News, July 23, 2025.*
The US dollar faced renewed weakness following remarks from Federal Reserve officials that signaled a more cautious stance on monetary policy tightening. With growing evidence that US inflation is cooling and a slowing pace of wage growth, traders are scaling back expectations for future rate hikes, resulting in downward pressure on the greenback.
This comprehensive report unpacks the latest developments in the forex market following key Fed commentary, analyzes its implications for major currency pairs, and outlines what economic indicators to watch next. The article draws on the original reporting by Mitrade News and further expands upon the market context, offering a 1000-word exploration of current forex movements.
## Fed Comments Spark Speculation of Dovish Turn
In recent public appearances, several Federal Reserve officials hinted at a potential shift in policy stance. The statements acknowledged progress in controlling inflation and the growing risks to economic growth. Federal Reserve Board members cited encouraging signs in recent inflation metrics and wage data, raising speculation that the central bank may hold off on further tightening or even consider future rate cuts.
Key takeaways from the Fed commentary:
– **Cooling Inflation**: Policymakers noted the recent decline in consumer price indices, particularly core inflation, which excludes volatile food and energy items.
– **Wage Deceleration**: Data suggests that wage growth is slowing, a sign that inflationary pressures in the labor market may be easing.
– **Cautious Outlook on Growth**: Fed officials expressed concerns about the drag that high interest rates may impose on the broader economy in coming quarters.
– **Reassessment of Rate Path**: While no clear guidance was provided on rate cuts, the tone of recent speeches suggests the Fed may be nearing the end of its hiking cycle.
These developments caused a broad selloff in the US dollar as traders adjusted positions in anticipation of a potential pivot toward more accommodative policy settings.
## Impact on the US Dollar and Major Currency Pairs
The weakening in the US dollar was most pronounced against the euro, the Japanese yen, and the British pound. Here’s how the dollar fared against its major counterparts:
### EUR/USD: Strongest Weekly Close in Two Months
– The euro gained significant ground, climbing to its highest weekly close since May.
– Supported by better-than-expected Eurozone economic indicators and reduced dollar demand.
– ECB officials reiterated their tightening trajectory, contrasting with the dovish tone of the Fed.
### USD/JPY: Slides Below 157
– The dollar dropped below the 157 level against the Japanese yen.
– Japanese officials’ verbal interventions and assurances of monitoring forex markets added to the yen strength.
– The USD/JPY pair lost nearly 1.6% over the week, erasing several weeks of gains.
### GBP/USD: Surges Toward 1.29 Handle
– The British pound traded higher, with the GBP/USD pairing approaching the 1.29 level.
– Better-than-expected UK services and manufacturing PMI data added to the pound’s momentum.
– Market expects one or two more rate hikes from the Bank of England, enhancing the pound’s appeal.
## Yield Declines Support Risk-On Sentiment
Lower US treasury yields further contributed to pressure on the dollar, while also supporting appetite for risk assets globally. The 10-year treasury yield fell nearly 15 basis points over the week, as traders priced in a less aggressive policy stance going forward.
– **2-Year Yield**: Dropped to 4.74%, retreating from highs near 5%.
– **10-Year Yield**: Declined to roughly 4.05%, its lowest level in over a month.
– **DXY Index**: The US Dollar Index slipped below 103.80, confirming a short-term bearish trend.
With falling yields, the relative carry advantage of holding US assets diminishes
Read more on EUR/USD trading.