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16.07.202600:57 Forex Analysis & Reviews: The Dollar Takes a Timeout

Slow and steady wins the race. The U.S. dollar has decided to take a break after the drop experienced the previous day. The reason for the plunge was significant: U.S. inflation in June slowed to 3.5% year-over-year, contrary to the forecasts of Wall Street Journal experts, who expected 3.8%. The May figure of 4.2% now appears to be a peak rather than a beginning of acceleration.

Dynamics of American Inflation

Exchange Rates 16.07.2026 analysis

The reaction from the futures market was instantaneous. The probability of a rate hike for the federal funds during the Federal Reserve's July meeting collapsed from nearly 40% to 17%. One month of data does not define the trend, but it does strip the central bank of immediate reasons to act right now and gives Chair Kevin Warsh an argument in favor of a wait-and-see position.

However, Warsh himself is not rushing to celebrate a victory. While speaking in Congress, he warned that looking at one month's data and declaring "mission accomplished" is premature. This is not the viewpoint shared by the Fed Chair.

Market Expectations for Fed Rates

Exchange Rates 16.07.2026 analysis

The ongoing war in Iran, now four and a half months old, remains the main source of inflationary pressure via energy prices. Gasoline prices have dropped by 10% compared to last month but are still 27% higher than a year ago. Meanwhile, oil has already rebounded from the decline that occurred during the recent ceasefire. This means that July is unlikely to replicate June's surprise.

According to ING, the market has already built confidence in a rate hike in September, and the fresh data has cast doubt on that conviction. However, a complete abandonment of the tightening idea will require more than one dose of weak data. In the short term, the U.S. dollar will remain stable, but its fate depends on inflation.

A similar caution prevails across the Atlantic. Bundesbank President Joachim Nagel notes that the resumption of hostilities between the U.S. and Iran has once again heightened geopolitical uncertainty, and that energy price dynamics remain a decisive factor for inflation prospects in the Eurozone. He indicated that the European Central Bank will remain vigilant.

Investors still expect Frankfurt to raise rates by the end of the year to curb the pressures caused by the conflict. Austria's National Bank Governor Martin Kocher and ECB Executive Board member Piero Cipollone assure that second-round effects, such as wage growth, are not yet visible, and future decisions will balance between maintaining and raising rates.

Exchange Rates 16.07.2026 analysis

This creates a strange picture: the U.S. dollar retreated on soft inflation, but geopolitics is ready to bring it back into play as early as July. Who will be proven right — the statistics or oil?

Technically, the daily chart for EUR/USD shows a tendency for the major currency pair to consolidate in the range of 1.137-1.147. Only a breakout from this range will allow the euro to determine its direction for further movement. For now, it makes sense to sell the regional currency on rises and buy on declines.

*تعینات کیا مراد ہے مارکیٹ کے تجزیات یہاں ارسال کیے جاتے ہیں جس کا مقصد آپ کی بیداری بڑھانا ہے، لیکن تجارت کرنے کے لئے ہدایات دینا نہیں.

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