On Sunday, U.S. President Donald Trump and European Commission President Ursula von der Leyen announced a new trade framework, which closely resembles the recent U.S.-Japan agreement. Under this deal, tariffs on European goods will be reduced to 15%, down from the 30% previously announced in early July. In return, the EU has pledged to invest EUR 600 billion in the US economy, with additional commitments to increase purchases of US natural gas and military equipment.

This development is providing further support for the US Dollar, as the market maintains a cautious tone ahead of the Federal Reserve’s monetary policy decision on Wednesday. While the Fed is expected to keep rates unchanged, strong recent employment figures and anticipation of a Q2 economic rebound—with preliminary GDP data set for release just hours before the Fed’s statement—are giving Chair Jerome Powell room to maintain a patient stance on future rate cuts. It could dampen expectations for a potential cut in September.

On the other hand, the Bank of Japan (BoJ) continues to stress the need for higher interest rates, but a near-term hike remains unlikely. The BoJ will deliver its policy decision on Thursday, and most analysts expect no change, as the central bank waits to assess the impact of global trade tensions, particularly tariffs, on Japan’s economic outlook. Consequently, the JPY is unlikely to gain significant support from this decision, remaining vulnerable to broader risk sentiment and external developments.

Trade Idea:

Buy USD/JPY on dips near 145.70, targeting 147.20, with a stop-loss at 145.20, as Fed’s hawkish stance and EU investment commitments support the Dollar.