Forex Today: US Dollar stabilizes after post-Fed volatility, eyes on BoE and US GDP data

Here is what you need to know on Thursday, July 30:

The US Dollar (USD) stabilizes in the European morning on Thursday following the volatile action seen in the American session on Wednesday. Preliminary July Consumer Price Index (CPI) data from Germany, second-quarter Gross Domestic Product (GDP) growth readings from Germany, the Eurozone and the United States (US) will be watched closely by investors later in the day. Additionally, the Bank of England (BoE) will announce its monetary policy decision, which will be followed by BoE Governor Andrew Bailey's press conference.

The Federal Reserve left its policy rate unchanged in the range of 3.5%-3.75% for the fifth consecutive meeting in July but three Fed officials dissented in favor of a quarter-point rate hike. Although the rate decision came in line with the market expectation, the immediate reaction caused the USD to weaken as markets saw about a 30% chance of a surprise rate hike heading into the event.

Fed Chair Kevin Warsh adopted a hawkish stance in the post-meeting press conference and helped the USD find a foothold. After losing more than 0.5% on Wednesday, the USD Index stages a rebound early Thursday and stays at around 101.00, rising about 0.2% on the day.

Fed’s Warsh doubles down on 2% goal, keeping Dollar bulls engaged

Warsh’s post-meeting press conference tone was notably more forceful than the established baseline, with a 7/10 FXS Speechtracker score versus a historic 6/10, underscoring a firmer commitment to the inflation fight. The repeated insistence that “only one target and it is 2%” and “we will deliver the 2% target,” alongside remarks that inflation “cannot be cured in 9 weeks” and that the committee “will not hesitate to act,” signals a resolute, patient hawkish stance despite acknowledging “impressive resilience” in the economy. The emphasis on trend over short-term data, higher nominal and real yields, and a robust, non-inertial policy debate points to a Fed comfortable with tight conditions for longer.

The FXS Fed Sentiment Index jumped by +18.94 points to 147.58, firmly in hawkish territory and well above the neutral 100 threshold, aligning with the stronger-than-usual FXS Speechtracker score. This sizeable move reflects markets interpreting Warsh’s unwavering 2% rhetoric, readiness to act, and focus on underlying inflation dynamics amid shocks as reinforcing expectations for a prolonged restrictive stance, a configuration that should continue to underpin the Dollar on a relative basis.

Tensions in the Middle East remain high in the second half of the week, with the US launching a "heavy wave of strikes," targeting southern Iran, including Bandar Abbas, Kish and Qeshm Island. Reportedly, a US-owned vessel caught fire in a suspected drone strike at an Egyptian port but Egyptian authorities have not announced confirmed the cause. Crude Oil prices continues to push higher on Thursday, with the barrel of West Texas Intermediate rising about 1% on the day above $84, after gaining nearly 7% on Wednesday.

The BoE is forecast to maintain its bank rate at 3.75% after the July meeting. After rising more than 0.5% on Wednesday, GBP/USD stays in a consolidation phase below 1.3350 in the European morning on Thursday.

Pound volatility risk builds as Rabobank flags EUR/GBP upside bias

Rabobank’s Jane Foley warns that the political backdrop could increasingly weigh on the Pound in the months ahead, noting that welfare reform and emerging intra-Labour tensions may unsettle investors. The bank argues that “this would likely be a source of volatility for the pound in the coming months,” adding that “it is possible that Burnham’s honeymoon with voters, Labour MPs and the markets will run out of steam into the autumn, if not before.” Against a backdrop of soft UK inflation and expectations that the BoE will remain on hold, Rabobank cautions that “given the potential for disappointment over a lack of rate rises from the Bank this year, coupled with the likelihood of political friction over budget cuts, we see risk of an upside bias in EUR/GBP towards 0.87 on a 3-month view.”

USD/JPY edges higher and trades slightly above 163.50 after posting marginal losses on Wednesday. Japan's Finance Minister Satsuki Katayama said that officials proposed no ceiling on next year’s budget requests, adding that the government needs to do year-on-year comparisons in budget size, as the initial budget could be larger than previous years, and the market could overreact to that.

Gold (XAU/USD) climbed above $4,100 during the American trading hours on Wednesday but retreated below that level before closing the day with a nearly 1% gain at around $4070. XAU/USD stays under bearish pressure in the European morning on Thursday and trades below $4,050.

Gold bid holds as Fed response seen too timid on inflation

Analysts at Commerzbank note that the recent move higher in Gold has been accompanied by a pronounced back-up in the long end of the US curve, as "longer-dated yields rose sharply as investors judged the Fed's response insufficient to contain persistent inflation." They argue that the central bank’s more cautious communication stance, with reduced forward guidance, is unlikely to calm markets in the near term, warning that "this approach is likely to keep market volatility elevated as investors reassess the policy outlook."