**US Dollar Rises Amid Shifting Market Expectations Ahead of Fed Decision**
*Adapted and expanded from the original article by Mitrade Live News, July 23, 2025*
The US dollar firmed against a basket of major currencies on Tuesday, bolstered by rising Treasury yields and shifting expectations regarding the Federal Reserve’s monetary policy path. Market participants are now adjusting to the possibility that the Fed may maintain its restrictive interest rate policy longer than previously anticipated, as incoming economic data in the United States continues to show resilience.
This article expands on the original Mitrade article by examining the underlying drivers of the dollar’s strength, analyzing recent economic indicators, exploring future expectations for the Federal Reserve, and providing additional context from other related developments in global currency markets.
## Key Highlights
– The US Dollar Index (DXY) climbed 0.3% to 104.05 early Tuesday, after yields on 2-year and 10-year US Treasury notes ticked higher on revised interest rate outlooks.
– US economic reports continue to show moderate strength, pushing rate cut expectations further out on the calendar.
– Fed Chair Jerome Powell’s upcoming post-meeting remarks on July 31 are expected to further influence dollar momentum.
– Other major currencies, including the euro and yen, showed uneven performance as traders recalibrated their positions.
– Risk appetite remained subdued amid geopolitical tensions and diverging central bank policies globally.
## US Dollar’s Climb: What’s Behind the Strength?
The US dollar has rebounded from recent lows, climbing against several major counterparts. The USD’s rally is supported by a convergence of factors:
### 1. Rising Treasury Yields
Investors demand higher yields in exchange for extending the maturity of US government debt. On Tuesday:
– The yield on the benchmark 10-year Treasury note ticked up to 4.28% from last week’s 4.21%.
– The 2-year yield, which is more sensitive to monetary policy expectations, rose to 4.65%, reflecting reduced bets on rate cuts.
Higher yields tend to attract yield-seeking investors, boosting demand for US assets and supporting the dollar.
### 2. Delayed Rate Cuts
The rapid deceleration in rate cut expectations has triggered a repricing in currency markets:
– Earlier in 2025, traders had priced in two to three Fed rate cuts by the end of the year.
– As of this week, futures markets indicate only one rate cut is likely—and even that is seen as contingent on further easing of inflation.
This shift has widened the interest rate differential between the US and other economies, particularly Europe and Japan, making US-denominated assets more attractive.
### 3. Stronger-than-Expected Economic Data
Recent US economic indicators have suggested continued expansion, reducing the need for aggressive rate reductions:
– June’s Core PCE (Personal Consumption Expenditures) price index, the Fed’s preferred inflation gauge, rose 2.8% year over year. While down from peak levels, it remains above the Fed’s 2% target.
– Non-farm payrolls in June beat expectations, adding 240,000 jobs, indicating a still-tight labor market.
– Retail sales rose 0.3% in June, surpassing consensus forecasts and reflecting steady consumer demand.
These data points support the Fed’s cautious approach, reinforcing the need to “wait and see” before altering its tightening bias.
## Fed’s Next Move: All Eyes on July 31
The Federal Reserve’s next policy decision is set for July 31. While the Fed is widely expected to leave its benchmark federal funds rate unchanged at 5.25% to 5.50%, the tone of Powell’s remarks will be heavily scrutinized for hints about the September meeting.
### Market Expectations Ahead of the Fed Meeting:
– According to the CME FedWatch Tool, traders now assign just a 28% probability to a September rate cut.
– This is a significant decline from
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