The U.S. dollar traded slightly higher on Friday morning but continued to hover near multi-year lows, as cooling geopolitical risks and improving trade sentiment kept pressure on the greenback. Meanwhile, the euro remained in high demand, buoyed by stronger-than-expected inflation figures from the eurozone.
Dollar Slips on Dovish Outlook and Easing Tensions
As of 04:45 ET (08:45 GMT), the U.S. Dollar Index—which tracks the currency against six major counterparts—was up slightly at 96.770, yet it remained near levels not seen since March 2022. The index is poised for a monthly decline of about 1.5%, extending its losing streak to six consecutive months.
Geopolitical developments contributed to the dollar’s weakness. The ceasefire between Israel and Iran has largely held, easing demand for safe-haven assets. On the trade front, U.S. Commerce Secretary Howard Lutnick announced that Washington and Beijing had finalized a trade agreement originally outlined last month in Geneva. While details are still scarce, Lutnick also hinted that a deal with India is nearly complete. Additionally, the European Union is reportedly considering reducing tariffs on certain American goods to speed up trade talks with President Donald Trump.
Focus Shifts to the Fed and Economic Data
Despite Federal Reserve Chair Jerome Powell’s cautious tone during his recent testimony before Congress, investors are increasingly betting on interest rate cuts this year. President Trump has renewed criticism of Powell and suggested a leadership change may be imminent, raising speculation that a more dovish Fed chief could soon be installed.
As a result, markets are now pricing in around 64 basis points of rate cuts in 2025—up sharply from 46 basis points just one week ago. However, upcoming inflation data, particularly the core PCE price index, could influence these expectations. This key inflation measure is expected to offer more clarity on the central bank’s potential rate path.
“The risks are tilted against the dollar,” analysts at ING wrote. “With the Fed’s cautious stance, pending inflation data, and ongoing trade developments, the greenback remains vulnerable to further declines.”
Euro Strengthens as Eurozone Inflation Surprises to the Upside
The euro climbed 0.2% to $1.1715, reaching its highest level since September 2021. Inflation data from France and Spain pointed to a potential shift in trend, reversing recent declines.
France’s harmonised consumer price index rose 0.8% year-on-year in June, surpassing expectations and rebounding from the 0.6% print in May—the lowest since December 2020. Similarly, Spain’s EU-harmonised inflation edged higher to 2.2% from 2.0% in the previous month.
While the market is waiting on Germany’s inflation report due Monday for a broader picture of the eurozone, ING noted that the EUR/USD pair could test the 1.20 level, though U.S. economic developments remain the dominant driver.
The British pound also extended gains, with GBP/USD rising 0.1% to 1.3743, nearing its October 2021 high of 1.3770 touched earlier this week.
Asian Currencies Mixed Amid Inflation and Trade News
In Asia, the Japanese yen edged up slightly, with USD/JPY down 0.1% at 144.32. Softer-than-expected inflation data from Tokyo in June hinted at potential easing in nationwide price pressures, casting uncertainty over the Bank of Japan’s ability to continue raising interest rates.
The Chinese yuan also saw modest movement, with USD/CNY up marginally to 7.1694. The pair showed little reaction to Lutnick’s announcement of a finalized U.S.-China trade deal, given the lack of concrete details.
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