The US dollar weakened against major global currencies on Friday, as markets grew jittery ahead of a looming tariff deadline and mounting fiscal concerns following President Donald Trump’s approval of a sweeping tax cut bill.
While the greenback had rallied on Thursday after better-than-expected job numbers delayed expectations for Federal Reserve rate cuts, gains proved short-lived. The US Dollar Index, which tracks the dollar’s performance against a basket of six major currencies, edged down 0.1% to 96.96 in early European trading. The index remains on course for its second consecutive weekly loss.
The dip comes after the House of Representatives narrowly passed Trump’s major tax-and-spending bill, projected to add $3.4 trillion to the US’s already substantial $36.2 trillion national debt. The legislation, which includes large-scale tax cuts and reductions in social safety-net programs, is expected to be signed into law on Friday.
Investors are now turning their focus to July 9—the date when a new wave of US tariffs is set to take effect on countries that haven’t finalized trade agreements with Washington. Trump confirmed that formal tariff notifications would be sent out Friday, signaling a move away from bilateral negotiations in favor of across-the-board rate impositions between 10% and 70%.
Dollar Retreats Amid Trade Friction
The euro rose 0.1% to $1.1773, positioning itself for a 0.4% weekly gain. The Japanese yen gained 0.4% to 144.375 per dollar, and the Swiss franc advanced 0.2% to 0.7939 per dollar. The dollar’s broader retreat reflects investor unease over the potential drag from escalating trade tensions and growing skepticism around US debt sustainability.
“The appetite for the dollar is shrinking,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “Concerns over ballooning US debt and the fallout from trade disruptions are reducing investor confidence. If inflation rises while trade slows, the Fed will find itself in a difficult position.”
Earlier in the week, the dollar hit multi-year lows against the euro and pound, capping its worst first-half performance since 1973. Traders were rattled by the administration’s volatile tariff strategy and the perceived erosion of US fiscal discipline.
Global Response to Tariff Deadline
European Commission President Ursula von der Leyen stated that the EU aims to reach a trade deal “in principle” with the US before the July 9 deadline. Meanwhile, Japan—one of the countries yet to secure a deal—is reportedly dispatching its top trade negotiator to Washington this weekend.
China also intensified trade tensions, announcing retaliatory tariffs of up to 34.9% on European brandy imports, effective July 5 and lasting for five years.
Strong Jobs Report Offers Temporary Support
Thursday’s release of the US Labor Department’s June employment report provided brief support to the dollar. Nonfarm payrolls rose by 147,000—beating estimates of 110,000—easing fears of a sharp labor market downturn.
“The labor market is softening gradually rather than collapsing, which is encouraging,” said Hirofumi Suzuki, chief currency strategist at SMBC. “Still, with trade negotiations likely to disappoint, we could see further dollar weakness and renewed yen strength.”
Market expectations for the Fed to hold interest rates steady at its July meeting have surged to 95.3%, up from 76.2% earlier this week, according to CME’s FedWatch tool. Most analysts now anticipate no rate cuts until September at the earliest.
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