The U.S. dollar nudged higher on Friday following President Donald Trump’s recent tariff announcements, which boosted demand for the greenback as a safe-haven asset. Meanwhile, the British pound came under pressure after disappointing growth data.
By 04:55 ET (08:55 GMT), the Dollar Index, measuring the dollar against a basket of six major currencies, climbed 0.2% to 97.500, positioning itself for a weekly gain close to 0.6%.
Safe-haven demand lifts the dollar
On Thursday evening, Trump declared a 35% tariff on all Canadian imports effective August 1, along with plans to impose broad tariffs ranging from 15% to 20% on several other trading partners. This followed earlier correspondence from the president outlining revised tariff rates for multiple countries.
Although the dollar has strengthened this week, market reaction to these latest tariffs has been relatively subdued compared to the dramatic moves seen after April’s so-called “Liberation Day,” yet investors remain cautious.
The USD/CAD pair rebounded 0.3% to 1.3699 after an initial sharp drop of over 0.5% overnight.
Beyond trade policy uncertainties, the dollar remains sensitive to U.S. economic data, as traders focus on clues about the Federal Reserve’s potential interest rate cuts.
Analysts at ING noted, “The fifth consecutive decline in initial jobless claims yesterday supports the view that a severe weakening in the labor market is unlikely to trigger an immediate Fed rate cut as early as September. This increases the importance of upcoming inflation data due Tuesday.”
Sterling falters on weaker GDP figures
In Europe, the euro slipped 0.2% to 1.1685 against the dollar, set for a weekly loss near 0.8%.
Trump’s tariff announcement on Canadian goods has sparked speculation about whether the European Union might be next to receive a formal tariff notice, casting doubt over ongoing trade negotiations with Washington.
Economic data showed consumer price inflation in France edged up to 0.9% in June, slightly exceeding preliminary estimates of 0.8%. Conversely, German inflation cooled to 2.0% in June, indicating that the European Central Bank may have scope to ease monetary policy further—likely in September—to support economic growth.
As ING analysts observed, “EUR/USD briefly dipped to 1.1670 yesterday. While short-term risks appear balanced, with a slight tilt to the downside, the absence of fresh data suggests the pair could hover around 1.170 for now.”
The British pound fell 0.3% to 1.3532 versus the dollar, on track for a weekly decline near 1%, after data revealed the UK economy unexpectedly contracted for the second consecutive month in May.
Figures released by the Office for National Statistics on Friday showed UK GDP declined 0.1% month-on-month in May, following a sharper 0.3% drop in April—the largest since October 2023.
ING analysts commented, “The upcoming jobs report next Thursday will provide further insights. Should conditions remain weak, it would heighten pressure on the Bank of England to accelerate interest rate cuts.”
Yen faces steep weekly losses
Elsewhere, USD/JPY rose 0.4% to 146.90, with the Japanese yen on course for a 1.7% weekly decline as markets digested a slew of tariff announcements and prepared for further trade-related developments.
The USD/CNY pair edged down 0.1% to 7.1709, while AUD/USD inched up 0.1% to 0.6577, on track for a weekly gain following the Reserve Bank of Australia’s unexpected decision to keep interest rates steady this week.
This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
Leave a Reply