USD falls against major currencies as S&P and NASDAQ hit record highs

    by VT Markets
    /
    Jul 21, 2025
    The US dollar fell against all major currencies, dropping 1% against the Japanese yen. This came after recent elections where the ruling party lost its majority, but the Prime Minister assured continued leadership. Now, all eyes are on the Bank of Japan’s possible shift towards a more aggressive policy, while the Federal Reserve may take a different approach. Last week, USDJPY reached a yearly high of 149.18 but has since dropped below key moving averages. Staying below the 200-hour moving average at 147.72 could keep selling pressure on the dollar.

    Euro And Pound Dynamics

    In the EURUSD pair, the exchange rate surpassed its 200-hour moving average at 1.1655 and is currently near the middle of the July decline. The euro shows a more positive short-term outlook, yet the price paused just below last week’s high. Similarly, GBPUSD broke through its 200-hour moving average, indicating a positive trend, but stopped in a resistance zone. USDCHF fell below a swing area and slowed down at the 100-bar moving average on the 4-hour chart. While stocks like the S&P and Nasdaq hit record highs, the Dow and Russell 2000 faced declines. US debt yields decreased, with the 2-year at 3.863%, the 5-year at 3.920%, the 10-year at 4.381%, and the 30-year at 4.947%. Given the dollar’s decline, we think that derivative traders should get ready for continued weakness in the USD. The political change in Japan, where Mr. Ishiiba’s party lost its majority, might encourage the Bank of Japan to adopt a more hawkish approach to strengthen the yen. This potential policy difference, combined with the Federal Reserve possibly easing, could shape market trends in the coming weeks. The technical drop in USDJPY below its 200-hour moving average is a strong bearish signal. In the past, even small signs of BOJ tightening, such as the unexpected yield curve control change in December 2022, have led to a sharp yen rally. We suggest considering put options on USDJPY or bearish call spreads, aiming for the initial retracement level around 146.70.

    Opportunities In Euro And Pound Pairs

    This situation isn’t solely about the yen. The EURUSD and GBPUSD have also gained strength by crossing above their crucial moving averages. With European inflation staying high, the European Central Bank may be slower to reduce rates compared to the Fed, providing support for the euro. Traders can leverage call options on these pairs to benefit from potential upside while managing their risk. The simultaneous drop in U.S. Treasury yields, with the 10-year yield falling below 4.40%, supports our view that the Fed will be less aggressive. According to the CME FedWatch Tool, the derivatives market now sees a greater than 60% chance of at least one rate cut by mid-next year. This declining yield gap makes holding the dollar less appealing and may further pressure it. We expect increased currency volatility as these central bank strategies become clearer. The Cboe Volatility Index (VIX) has been relatively calm, but we anticipate that volatility specific to currencies will rise from its current low levels. This makes strategies like long straddles on major pairs appealing for traders who expect significant moves but are unsure about the immediate direction. Create your live VT Markets account and start trading now.

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