US Dollar Steadies on US-Japan Trade Deal Optimism

US Dollar holds firm as markets assess the implications of the US-Japan agreement.

The US Dollar (USD) stabilized on Wednesday after a three-day slide, as traders paused to digest easing global trade tensions following a new trade agreement between the US and Japan. The deal, announced just ahead of the August 1 tariff deadline, helped calm market nerves. However, fresh political pressure on the Federal Reserve—particularly criticism directed at Chair Jerome Powell—has renewed concerns over the central bank’s independence, keeping investor sentiment fragile and the Greenback under pressure.

The US Dollar Index (DXY), which measures the currency against a basket of six major peers, hovered near 97.40 during Wednesday’s U.S. session. This comes after a sharp retreat from recent four-week highs, with the index down roughly 1.10% so far this week as market participants await further clarity on trade developments.

Cautious optimism was sparked on Tuesday when President Donald Trump announced a “massive” trade deal with Japan, which he claimed could be “perhaps the largest deal ever made.” Under the agreement, proposed tariffs of 25% on Japanese goods will be reduced to 15%. Trump also stated that Japan would invest $550 billion in the U.S., with 90% of the profits flowing back into American industries. The deal is expected to boost U.S. exports—especially in vehicles, rice, and other agricultural products—and create “hundreds of thousands” of American jobs.

The agreement has helped calm fears of a broader trade escalation ahead of the August 1 deadline, fueling optimism that Washington might seek similar negotiated settlements with other trade partners. However, ongoing unresolved negotiations—particularly with India and the European Union (EU)—continue to cloud the US Dollar’s short-term outlook with uncertainty.