US Dollar Retreats Following Divided Federal Reserve Decision as Oil Prices Spike Amid Middle East Tensions

Key market insights for Thursday, July 30:

The US Dollar (USD) experienced a significant decline during Wednesday’s American session after the Federal Reserve opted to maintain current interest rates. The Federal Open Market Committee (FOMC) held the federal funds target range at 3.50%–3.75% following a split 9–3 vote. Dissenting members—including Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan—had advocated for a 25-basis-point hike. The Fed noted that while economic activity remains robust, inflation persists at elevated levels, driven in part by energy-related supply shocks.

The US Dollar Index (DXY) dropped approximately 0.5%, trading near the 100.90 level. Despite the hawkish stance of the minority, the decision to hold rates has sparked uncertainty regarding whether a majority of policymakers will support a rate hike at the upcoming September meeting. This market reaction also triggered a decline in US Treasury yields and widespread selling of the Greenback.

Current US Dollar Market Overview

The following table illustrates the daily percentage fluctuations of the US Dollar (USD) against various major currencies. The US Dollar has shown the most strength against the Australian Dollar.

USDEURGBPJPYCADAUDNZDCHFUSD-0.67%-0.48%-0.21%-0.44%0.32%-0.11%-0.69%EUR0.67%0.20%0.45%0.24%1.03%0.57%-0.01%GBP0.48%-0.20%0.28%0.05%0.83%0.37%-0.20%JPY0.21%-0.45%-0.28%-0.22%0.57%0.10%-0.47%CAD0.44%-0.24%-0.05%0.22%0.78%0.33%-0.25%AUD-0.32%-1.03%-0.83%-0.57%-0.78%-0.47%-1.01%NZD0.11%-0.57%-0.37%-0.10%-0.33%0.47%-0.55%CHF0.69%0.00%0.20%0.47%0.25%1.01%0.55%

The heat map displays percentage changes between major currencies. The base currency is listed in the left column, and the quote currency is in the top row. For example, the value at the intersection of the US Dollar (left) and the Japanese Yen (top) shows the USD/JPY percentage change.

EUR/USD climbed approximately 0.7% to trade near 1.1470, hitting a one-week high as the US Dollar weakened. On Thursday, focus shifts to preliminary Q2 GDP data from Spain, Germany, and Italy, alongside broader Eurozone economic sentiment and unemployment figures. Germany is also scheduled to release preliminary July inflation data.

GBP/USD rose about 0.5% to near 1.3360 ahead of the Bank of England’s monetary policy announcement. The BoE is widely expected to keep the Bank Rate at 3.75%. Investors will be closely analyzing the voting split, the Monetary Policy Report, and Governor Andrew Bailey’s commentary for clues regarding future interest rate directions.

USD/JPY declined by roughly 0.2% to 163.50, as the broader USD weakness allowed a modest recovery for the Yen. However, the pair remains near multi-decade highs due to the significant interest rate gap between the US and Japan. Thursday’s data for Japan includes inflation, unemployment, and retail sales figures.

AUD/USD remains under pressure near 0.6945, falling 0.4% despite the weaker Dollar. The Australian Dollar continues to face headwinds following June inflation data that missed market expectations, reducing the likelihood of imminent rate hikes from the Reserve Bank of Australia. Australia will release June Building Permits on Thursday.

West Texas Intermediate (WTI) Crude surged over 7% to approximately $85 per barrel as Middle East tensions intensify. Following attacks on Saudi energy facilities, the US and Saudi Arabia conducted strikes against Iran-backed groups in Iraq, while Iran targeted US forces in Jordan. This escalation has heightened fears of regional supply disruptions and weakened hopes for a swift diplomatic resolution.

Gold increased by 0.7% to trade near $4,056 per troy ounce, benefiting from the falling US Dollar and renewed safe-haven demand fueled by Middle East conflict. The decline in US Treasury yields following the Fed’s decision also provided further support for the precious metal.

The US economic calendar for Thursday includes preliminary Q2 GDP and the Federal Reserve’s preferred Personal Consumption Expenditures (PCE) inflation metrics. Annualized GDP growth is projected at 2.1%, while Core PCE inflation is expected to rise 0.2% MoM and 3.3% YoY for June. Additionally, initial jobless claims are expected to rise to 200K, while personal income and spending are forecasted to grow by 0.3%.

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