The U.S. dollar climbed on Friday, bouncing back from two-week lows, yet it remains at subdued levels as traders digest the shifting landscape around global trade ahead of next week’s Federal Reserve meeting.
At 04:35 ET (08:35 GMT), the Dollar Index, which tracks the greenback against a basket of six currencies, increased 0.2% to 97.340. Still, it’s on track for a roughly 1% weekly decline, marking its weakest performance in a month.
Dollar finds some support
As the week wraps up, the dollar has found modest backing, helped by talks of future trade agreements with the European Union and China—two of America’s biggest trading partners. Earlier this week, the European Commission indicated that a negotiated solution was near ahead of the August 1 deadline, while U.S. and Chinese officials plan to meet in Stockholm next week to discuss extending the deadline for trade talks.
All eyes now turn to the Federal Reserve meeting, which is widely expected to keep rates steady. Traders will be looking closely at the Fed’s subsequent commentary for clues on the timing of future moves.
“We’re still of the opinion that the dollar can find a little stability this summer on higher inflation and delayed Fed rate cuts – but clearly this view stands against pervasive dollar pessimism in the market,” said analysts at ING, in a note.
Euro stays near four-year high
In Europe, EUR/USD slipped 0.1% to 1.1745, but the euro remains close to the near four-year peak of $1.183 touched earlier this month. The European Central Bank held its policy rate steady at 2% on Thursday, ending a year of easing to await more clarity on U.S. trade relations.
ECB President Christine Lagarde described the economy as resilient and a little better than expected during the press conference. However, data released on Friday showed German business morale improved less than anticipated in July.
The Ifo institute said its business climate index rose to 88.6 in July from 88.4 in June, below the forecast of 89.0.
“The upturn in the German economy remains anaemic,” Ifo president Clemens Fuest said.
Pound dips after weak UK retail sales
GBP/USD fell 0.4% to 1.3468 following data revealing that UK retail sales volumes grew by 0.9% month-on-month in June, missing the expected 1.2% rise and recovering less than a third of May’s 2.8% drop. Household goods retailers faced particular difficulties, with sales declining 0.1% month-on-month for the second month running, as the housing market continued to struggle after stamp duty changes.
Yen falls after softer inflation data
Elsewhere, USD/JPY traded 0.5% higher at 147.71 after Friday’s data showed Tokyo’s consumer price inflation eased more than expected in July, despite core inflation staying above the Bank of Japan’s target. The BOJ is expected to keep interest rates steady next week amid U.S. tariff tensions and domestic political uncertainty.
AUD/USD dropped 0.4% to 0.6568 but is still on track for a weekly gain of around 1% following the trade deal between Japan and the U.S., while USD/CNY rose 0.2% to 7.1672.
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