Insights 
VT 
News of formal trade talks between the US and China briefly boosted the dollar by 0.4-0.5%. Previously, the yen and Swiss franc benefited from US asset sell-offs due to reciprocal tariffs.
Upcoming events include Treasury Secretary Scott Bessent’s testimony on the international financial system. His statements about currency deals and the strong dollar policy are anticipated, with potential implications for the dollar.
Expected Impacts from the FOMC Meeting
The Federal Open Market Committee meeting and Chair Powell’s press conference are expected to have minimal impact. Despite speculation of a rate cut in July, markets have reduced expectations for the Fed’s easing cycle.
The Dollar Index (DXY) has struggled, with price action viewed as weak and potential for downward movement. This suggests the dollar faces challenges related to US policymaking uncertainties.
Markets initially reacted with enthusiasm when formal trade negotiations between the United States and China were announced, nudging the dollar upwards by around half a percent. That movement, though relatively modest, revealed how sensitive dollar positioning remains to geopolitical developments. In earlier trade sessions, we’d seen the yen and the Swiss franc gain ground—largely at the dollar’s expense—driven not by strengthening fundamentals abroad, but rather by risk-off sentiment triggered by tit-for-tat trade measures.
This pattern reminds us how quickly leveraged flows can rebalance when investor confidence in US assets is shaken. The takeaway should be straightforward: environment-driven currency strength, particularly involving safe-haven assets, often signals underlying anxiety rather than optimism.
Now, all eyes are on Treasury Secretary Bessent’s upcoming testimony. He is expected to touch on currency pacts and Washington’s stance on the dollar. Whether he delivers clarity or introduces further uncertainty might determine the week’s trading tone. His predecessors have, at times, sent markets moving simply by reaffirming—or deviating from—the conventional strong-dollar narrative. We’re watching carefully to see whether this pattern holds.
Challenges for the Dollar Index
On the monetary front, the approaching FOMC meeting is unlikely to shift expectations meaningfully. Powell has already downplayed urgency around immediate rate adjustments. While there was once firm chatter of a July cut, those forecasts have faded as recent data continues to show a resilient jobs market and inflation measures that complicate any dovish pivot. In derivative terms, Fed Funds futures show reduced pricing for easing—a clear indicator that policy sentiment isn’t aligned with aggressive trimming.
The broader sentiment tied to the dollar index still leans negative. Momentum has not held, and the DXY appears structurally soft. From recent chart action, we notice an unwillingness to reclaim prior highs. That paints a picture of waning conviction. As positioning unwinds, the dollar looks exposed, particularly if Bessent tips policy more towards accommodation or if the narrative around trade drifts off course once more.
We’re considering that fragility in directional exposure. With positioning lighter, implied volatility has scope to rise in short bursts. This could offer windows of opportunity for traders who act when pricing fails to reflect incoming policy cues. Staying reactive, rather than predictive, might serve better over the next stretch.
Price patterns suggest the dollar may struggle to find clear support. It’s not a collapse, but it’s a laboured path forward. Traders with near-term exposure may lean into that asymmetry; resistance levels across major crosses have held firm, and unless structurally broken, favour the risk of pullbacks.
Eye on the tape. Narrative shifts—from either Bessent or Powell—tend to ripple wider than initially expected. What sounds benign in policy commentary can be magnified by global positioning that’s still skittish. For now, we’re adjusting not for headlines, but for follow-through.
