The U.S. dollar’s seven-day advance abruptly reversed course on Wednesday after reports indicated President Donald Trump was seriously considering firing Federal Reserve Chair Jerome Powell. These headlines sparked sharp volatility, initially pressuring the greenback significantly. Although Trump later described the reports as "highly unlikely" and dismissed them as untrue, he acknowledged ongoing frustration with Powell over interest rates, leaving markets wary about the Fed's leadership and future monetary policy.

Earlier, the dollar had drawn robust support from upbeat bank earnings and reassuring economic data, notably softer-than-expected June producer price figures and encouraging signs of manufacturing recovery. U.S. Trade Representative Jamieson Greer’s commitment to reducing America's $1.2 trillion trade deficit had also bolstered investor confidence. However, the Powell speculation undermined these bullish factors, causing the dollar index to retreat toward its critical 21-day moving average at 97.75, as investors cautiously awaited upcoming economic releases.

EUR/USD volatile amid tariff and policy uncertainty

EUR/USD traded within a wide 160-pip range before stabilizing modestly higher, but it remained below the crucial 21-day moving average at 1.1672. Markets closely monitored EU trade chief Maros Sefcovic’s trip to Washington aimed at preventing disruptive U.S. tariffs. Encouragingly, the euro’s one-month risk reversal rose above parity, signaling easing bearish sentiment and potentially supporting further stabilization. Nonetheless, uncertainty regarding U.S. monetary policy and transatlantic trade negotiations continued to weigh on sentiment.

Sterling boosted by surprise UK inflation spike

GBP/USD jumped temporarily towards its pivotal 55-day moving average at 1.3483 after UK inflation data for June surprised markets, accelerating sharply to 3.6%. This unexpected rise in CPI challenged prior expectations of imminent Bank of England easing, creating renewed debate on the BoE’s next policy move. However, BoE rate-setter Catherine Mann voiced caution, warning that sustained demand without matching supply-side improvements could produce a risky economic "sugar high," tempering market enthusiasm and highlighting underlying vulnerabilities in Britain's economic outlook.

USD/JPY retreats amid falling yields and tariff threats

USD/JPY fell sharply, following declines in U.S. Treasury yields triggered by Powell-related uncertainty. Traders significantly trimmed bullish yen positions, although key technical supports around the 200-hour moving average and the July 10 peak (146.78) held firm, indicating lingering buying interest. Further complicating yen sentiment, President Trump indicated intentions to enforce a 25% tariff on Japanese imports from August 1, heightening bilateral tensions and risk premiums around the yen’s outlook.

Treasury yields fall; equities rise cautiously

Treasury yields broadly retreated, falling by up to 7 basis points across the curve, although the 2-year to 10-year spread modestly steepened to around +53.2 basis points. Equity markets reacted positively despite volatility, with the S&P 500 climbing 0.31%, largely driven by gains in healthcare stocks. However, investor caution persisted amid ongoing trade uncertainties and Fed leadership questions.

Mixed commodities reflect cautious investor sentiment

Commodity markets exhibited mixed performance. WTI crude oil edged 0.33% higher, supported by underlying demand strength despite rising inventories. Gold benefited from lower Treasury yields and market caution, rising by 0.76%. Conversely, copper prices declined by 0.75%, reflecting persistent investor unease over global trade tensions and broader economic uncertainties.