The following is a rewritten and expanded version of the article originally published on Mitrade by the reporting team. The content has been revised for clarity and depth, offering an analysis of the developments in the Forex market as reported on July 26, 2025. Full credit to the original source and reporters at Mitrade.
Forex Market Update: Dollar Trades Lower Amid Fed Policy Uncertainty and Weak Economic Data
The US dollar slipped against major currencies during early trading hours on Friday, July 26, 2025, following a series of economic indicators that fell short of expectations and increased market speculation that the Federal Reserve may delay further tightening of its monetary policy stance. Investors remain cautious as they digest mixed macroeconomic data, central bank commentary, and global geopolitical developments.
Key Highlights:
– The US Dollar Index (DXY), which measures the greenback against a basket of six major currencies, declined by 0.3 percent to 104.17 in early European trade.
– Weaker-than-expected GDP figures and labor market data renewed discussions around whether the Federal Reserve has reached the end of its tightening cycle.
– Central banks in other major economies, including the European Central Bank (ECB) and the Bank of Japan (BoJ), also made headlines this week as they signaled differing policy paths.
– Market participants are now turning their attention to the upcoming Federal Open Market Committee (FOMC) meeting and speeches by Fed officials for further clarity.
US Economic Indicators Disappoint
Recent economic data from the United States has added downward pressure on the dollar, suggesting challenges ahead for policymakers.
– The advanced estimate of second-quarter GDP revealed US economic growth slowed to an annualized pace of 1.5 percent, below the forecast of 1.9 percent and sharply down from 2.5 percent in the previous quarter.
– Core PCE inflation, which the Fed monitors closely, moderated to 2.4 percent annually, decreasing from 2.6 percent, signaling potential easing of inflationary pressures.
– Weekly jobless claims rose to 246,000, exceeding analysts’ expectations of 232,000, hinting at a possible softening in the labor market.
These figures have cast doubt on the Federal Reserve’s resolve to continue with aggressive rate hikes. While inflation remains above the central bank’s 2 percent target, a slowdown in economic momentum may prompt a more cautious approach.
Federal Reserve Policy in Focus
With inflation appearing to gradually cool and GDP growth slowing, the market is increasingly pricing in the possibility of a prolonged pause or even a rate cut by the end of 2025.
– Market pricing reflected in fed funds futures shows a 62 percent probability that the Fed will hold rates steady at the next policy meeting.
– Some traders are beginning to bet on a rate cut by December, a shift from earlier expectations of further tightening.
– Comments from key Fed officials, including NY Fed President John Williams and Fed Governor Lisa Cook, hinted at a balanced tone. While they acknowledged inflation remains a concern, both emphasized the need to be data-dependent moving forward.
Aside from economic data, another factor influencing the Fed’s next move is the recent decline in consumer confidence. According to the University of Michigan’s final reading for July, consumer sentiment dropped to 69.1 from 72.5 in June, adding to the case for caution among Fed officials.
Global Central Banks Chart Their Own Courses
While the Federal Reserve appears to be leaning towards a more neutral stance, other central banks are displaying varied approaches based on domestic conditions.
European Central Bank Holds but Warns of Inflation Risks
– The ECB held its key interest rate unchanged at 4.25 percent during Thursday’s meeting, as widely expected.
– President Christine Lagarde emphasized that inflation remains too high and that the central bank stands ready to resume rate hikes if necessary.
– The ECB’s stance was perceived as slightly hawkish, especially after some investors had expected more dovish language given recent signs of weakening demand in the eurozone
Read more on EUR/USD trading.