From my trading desk: A little dollar strengthening from 5:00 am to 9:00 am, then ...
From 5:00 am to 9:00 am, I saw dollar strengthening based on the decreasing price of the EUR/USD as reported on the NADEX. The price went from 1.15424 to 1.15354. The U.S. Bureau of Economic Analysis released its balance of trade report at 8:30 am and it reflected a decrease in the U.S. trade deficit of about $60.2 billion in the month of July. That news was offset by a fall in both exports and imports from levels reported in the previous June. Imports were valued at $277.3 billion while exports were valued at $337.5 billion.
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The balance of trade is the difference in value between a country’s imports and a country’s exports. A trade deficit, contrary to the political ramblings coming out of Washington, is not necessarily a bad thing. A country that imports more than it exports does not necessarily mean it has a production problem. The country may simply be wealthy enough (enough of a credit-production machine) that it can buy what it chooses not to produce.
And as much as some politicians belabor how bad trade deficits are, at least today as we moved past the release, the US dollar continued to strengthen. For example, by 8:50 am I saw continued dollar strengthening where the price of the euro in terms of the dollar continued to fall to 1.15348.
But alas (there is always an alas), I saw dollar weakening at 9:26 am, just minutes before the opening of the cash trade where the price of the euro ticked up to 1.15499.
My friends at FXStreet determined probable ceilings for the EUR/USD at 1.1560, 1.1600, and 1.1630. Probable floors for the EUR/USD were determined at 1.1505, 1.1470, and 1.1420. I determined at 11:00 am my own five-hour average of 1.1544 and determined that I would sell EUR/USD>1.1600, sell the EUR/USD at 1.1640, and buy EUR/USD > 1.1520, all expiring at 3:00 pm today.
From my political desk … The law dampens Trump’s moves on the Fed.
In addition to finding a replacement for the chairman of the Board of Governors of the Federal Reserve System, Jerome Powell, President Trump will also have to find a replacement for Federal Reserve Board governor Adriana Kugler, who submitted her resignation last Friday on 1 August 2025. Not one to believe in a two-week notice, Dr. Kugler will depart on 8 August 2025.
Mr. Trump has been pushing a quasi-mercantilist agenda that calls for increasing income from exports including raising tariffs on economic foes and allies alike while advocating for a weakened U.S. currency that would make U.S. exports cheaper for foreign importers to purchase.
A factor that contributes to a weakened dollar is a reduction in the reference rates used to determine the price of the forward contracts used to deliver currencies. One of those reference rates, the effective federal funds rate, is a weighted average of overnight rates that banks charge each other for borrowing excess reserves sitting in either their bank vaults or in the vaults of a federal reserve bank. The Federal Open Market Committee, made up of all seven Federal Reserve Board governors and the heads of five federal reserve banks, determines the range of administrative rates within which the effective federal funds rate falls.
On the top end of the range is the discount window rate, the rate assessed on a bank seeking to borrow funds from a federal reserve bank. On the bottom end of the range is the overnight reverse repo rate, a lending facility for non-depository financial institutions.
Also, falling between the above two administered rates is the interest rate paid on reserve balances, the very balances I discussed before that are held in a bank’s vaults. The FOMC also determines the level of this rate.
While the FOMC chairman pursues consensus on administered rates, he or she cannot dictate the policy decisions of the other eleven members of the Committee. President Trump’s political influence on Board members may end with whatever he shares with his nominees prior to their approval by the Senate. He would have to somehow get seven FOMC members to vote his way.
For a Federal Reserve that has reiterated how dependent it is on the data and given Mr. Trump’s demonstrated liberal license with most things quantitative, he would have to nominate Board members who are able to spin for its fellow members’ a narrative that can dissuade them from following the numbers.
Alton Drew
5 August 2025
For a legal analysis of the topics discussed in this post, contact me at altondrew@altondrew.com.
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