The U.S. dollar made a slight move upward in early Friday trading but stayed pinned near its lowest levels in over two years, weighed down by fading geopolitical tensions and improving global trade sentiment. In contrast, the euro continued to strengthen, supported by upbeat inflation figures from key eurozone economies.
Dollar Faces Headwinds from Easing Risk and Dovish Fed Expectations
By 04:45 ET (08:45 GMT), the U.S. Dollar Index — a measure of the greenback’s performance against six major currencies — had inched up to 96.770, though it remained just above its lowest point since March 2022. The index is set to close June down by about 1.5%, marking a sixth consecutive monthly decline.
Calmer geopolitical conditions have reduced demand for the dollar as a safe haven. A fragile but holding ceasefire between Israel and Iran has eased market anxiety. On the trade front, U.S. Commerce Secretary Howard Lutnick confirmed progress on a U.S.-China agreement, originally outlined last month, though details remain vague. He also suggested a trade deal with India is near completion, while the European Union is reportedly considering tariff cuts on U.S. goods to accelerate negotiations with President Donald Trump’s administration.
Fed Policy in the Spotlight as Traders Await Inflation Clues
Investors continue to monitor the Federal Reserve’s policy outlook, especially after Chair Jerome Powell reiterated a cautious stance in his recent appearance before Congress. However, political pressure is mounting: President Trump has again criticized Powell and hinted at the possibility of appointing a new, more accommodative central bank leader.
Rate-cut expectations have risen sharply as a result. Markets are now pricing in 64 basis points of interest rate reductions in 2025, compared to 46 bps just a week earlier. That outlook could shift depending on the outcome of today’s core PCE price index — a key inflation metric that may guide the Fed’s next moves.
“The dollar’s outlook remains fragile,” analysts at ING noted, citing Fed policy, inflation risks, and trade dynamics as potential catalysts for further weakness.
Euro Builds Momentum as Inflation Picks Up in France and Spain
The euro rose 0.2% to $1.1715, reaching levels last seen in September 2021, bolstered by better-than-expected inflation data from France and Spain.
In June, France’s harmonized consumer price index increased 0.8% year-over-year, a noticeable rise from 0.6% in May — the lowest rate since December 2020. Spain’s EU-harmonized inflation also edged up to 2.2% from the previous 2.0%.
Investors are now awaiting inflation figures from Germany, due Monday, to assess broader eurozone price trends. According to ING, the EUR/USD pair may target 1.20, although U.S. economic signals will likely steer the next major move.
Pound Edges Higher; Yen and Yuan Show Muted Response
The British pound continued its climb, with GBP/USD up 0.1% to 1.3743, approaching its October 2021 peak of 1.3770.
In Asia, the Japanese yen strengthened slightly against the dollar, as the pair USD/JPY slipped 0.1% to 144.32. Softer-than-expected Tokyo inflation in June raised doubts about the Bank of Japan’s ability to tighten policy further.
The Chinese yuan was stable, with USD/CNY ticking up to 7.1694. Markets largely shrugged off Lutnick’s mention of a finalized U.S.-China trade deal, awaiting more specific details before reacting decisively.