FX Weekly: FOMC & payrolls likely to boost the dollar

The US dollar is set to end the week lower against most other G10 currencies, with progress on US trade deals with Japan and Europe, a relatively hawkish ECB meeting, and continued headlines around Fed independence all contributing to downward pressure on the greenback. While that has left the DXY index back towards the bottom of its recent range, we continue to think that the next meaningful move will be a dollar rally. Negative sentiment and position vis-à-vis still look stretched, in our view. While next week’s FOMC meeting may struggle to catalyse a big move given the ongoing uncertainty around Powell’s role, we think policymakers will signal a less dovish stance than what money markets appear to expect and that firmer signs of tariff-driven inflation in the July CPI data (due in mid-August) will support that stance.