The U.S. dollar slipped slightly on Thursday, as rising expectations of interest rate cuts by the Federal Reserve and ongoing trade concerns weighed on sentiment.
By 04:10 ET (08:10 GMT), the U.S. Dollar Index, which measures the greenback’s strength against six major currencies, was down 0.1% at 97.877, extending losses after a 0.6% drop in the previous session.
Jobless Claims in Focus
The dollar has come under pressure following a weaker-than-expected U.S. employment report last week. That bearish tone was reinforced earlier this week by soft data from the services sector, fueling speculation that tariffs implemented under the Trump administration are beginning to take a toll on economic momentum.
Traders are now looking to the upcoming weekly initial jobless claims report, expected later today. Economists anticipate a rise of 3,000 claims to a total of 221,000 for the week ending August 2.
Market participants are increasingly convinced that the Fed will ease policy at its next meeting, with FedWatch data from the CME Group showing a 94% probability of a rate cut in September, compared to 48% just a week earlier. In total, markets are now pricing in 60.5 basis points of cuts by year-end.
Trade Tensions, Institutional Concerns Pressuring Dollar
Investor anxiety remains elevated over the trade front, particularly after President Donald Trump announced late Wednesday on social media that new tariffs on major economies will come into effect at midnight.
The dollar is also being influenced by growing concerns about political interference in key U.S. institutions. Trump recently dismissed the official in charge of labor statistics, and must now fill a vacancy on the Fed’s Board of Governors. He is also considering candidates for the role of Fed Chair.
“We think the nomination of Kevin Hassett, who is considered the frontrunner, is a negative event for the dollar due to his dovish views and greater perceived exposure to Trump’s influence compared to the other main candidate, Kevin Warsh,” said ING in a note.
Euro Rises on Hopes for Ukraine Truce
The euro gained ground against the dollar, with EUR/USD up 0.2% to 1.1689, supported by headlines suggesting that Trump could meet Russian President Vladimir Putin as early as next week as part of renewed diplomatic efforts to end the war in Ukraine.
“Trump’s optimism on a Ukraine-Russia truce is likely feeding into euro strength, which stands in complete opposition to the dollar on the matter,” ING commented. “Should a truce become a more tangible prospect, EUR/USD and EUR/CHF are expected to serve as the primary channels for euro appreciation.”
However, not all European data was supportive. Figures released earlier Thursday showed that Germany’s industrial production dropped 1.9% in June, exceeding expectations and suggesting the boost from companies rushing to beat U.S. tariffs may be fading.
Sterling Climbs Ahead of BoE Decision
The British pound edged up 0.2% to 1.3378, ahead of the Bank of England’s policy meeting later today.
Markets widely expect the central bank to lower its benchmark interest rate to 4% from 4.25%, marking the fifth rate cut over the past 12 months.
Investors are particularly focused on the BoE’s forward guidance as policymakers navigate between a weakening labor market and persistent inflation pressures.
“The reaction in sterling will be primarily driven by the vote split; expect dissenters on both sides,” said ING. “At least one member (Catherine Mann) should vote for a hold, and might be joined by two more (Huw Pill and Megan Greene), although this is not our base case. Arch-dove Swati Dhingra should vote for 50bp, with some risks of fellow dove Alan Taylor joining her.”
Yuan and Aussie Dollar Supported by Trade Data
In Asia, USD/JPY fell 0.3% to 146.94, despite conflicting reports indicating that Washington may layer new 15% tariffs on top of existing levies targeting Japanese imports.
Meanwhile, the Australian dollar rose 0.4% to 0.6526, supported by stronger-than-anticipated June trade figures. A 6% jump in exports helped the country recover from a previous slump in outbound shipments.
The Chinese yuan also strengthened, with USD/CNY down 0.1% to 7.1788. While China’s overall trade surplus shrank more than expected in July, a 7.2% surge in exports helped offset concerns. Local exporters appeared to benefit from a temporary trade truce with Washington. Imports also unexpectedly rose 4.1%, suggesting resilience in domestic demand despite broader headwinds.
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