The trade-weighted US Dollar (USD) has been up 1.6% since the beginning of the month. Against the Euro (EUR), it is slightly less, but yesterday it did manage to temporarily reach 1.15 again. It is not even three weeks ago, but the first half of the year, which was the weakest for the USD against the euro since the 1970s, and levels of 1.18 seem far away at the moment, Commerzbank's FX analyst Volkmar Baur notes.

Tariffs are likely to come back into focus next week

"Of course, the USD has appreciated in recent days. But the data also supported this. Inflation came in as expected on Tuesday. However, a slight acceleration in the rate of inflation had also been expected, and this initially suggests that the Fed will be more cautious. In addition, there were clear signs in some sub-components that tariffs are having an impact on inflation. Even if other effects counteract this in the overall rate. Yesterday's retail sales figures also point to continued robust growth in private consumption, which likewise does not argue in favour of interest rate cuts. As a result, it should come as no surprise that the US dollar has appreciated again slightly."

"On the other hand, it must also be said that after a depreciation of over 13% against the euro in the first half of the year, a rebound of less than 2% is not exactly a trend reversal, but perhaps more of a breather. After all, the problems facing the US dollar have not gone away and could come back into focus next week. Wednesday's episode should serve as a warning. The US government clearly wanted to test how the market would react to the dismissal of the Fed chairman. The considerations in this regard are therefore very concrete, and every time the US government publicly toys with this idea, the Fed's independence diminishes a little bit more."

"In addition, tariffs are likely to come back into focus next week. We are rapidly approaching 1 August, and just because the market seems convinced that Trump will back down again this time, that does not mean that it has to happen. The strength and speed of the US dollar's depreciation in the first half of the year made a slight recovery in recent weeks very likely. And this may not be over yet. Structurally, however, I still see the US dollar in a downward trend."