The U.S. dollar edged lower on Thursday as investors ramped up bets on Federal Reserve rate cuts and remained cautious over escalating trade tensions.
As of 04:10 ET (08:10 GMT), the Dollar Index—which compares the greenback against six major peers—had slipped 0.1% to 97.877, following a sharper 0.6% drop the day before.
Fed Cut Bets Rise Before Jobless Report
The dollar’s recent decline has been driven by a string of underwhelming economic data, beginning with last week’s soft jobs report. Weak performance in the services sector earlier this week has added to fears that Trump-era tariffs are beginning to undercut U.S. economic momentum.
Attention is now turning to the weekly jobless claims data, expected later today. Economists are forecasting a modest increase of 3,000 to 221,000 for the week ending August 2.
Market expectations for monetary easing have surged. According to CME Group’s FedWatch Tool, traders now see a 94% chance that the Federal Reserve will cut rates in September—up from 48% one week ago. Cumulatively, markets are projecting 60.5 basis points of easing in 2025.
Political Tensions and Trade Headlines Add Pressure
Adding to the pressure on the greenback are growing concerns around the independence of key U.S. economic institutions. Last week, President Trump dismissed the official overseeing labor statistics, prompting fresh uncertainty about upcoming appointments, including a pending vacancy on the Fed’s Board of Governors and the selection of the next 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,” wrote analysts at ING.
Traders are also digesting fresh tariff threats, after Trump declared via social media on Wednesday night that new trade levies on major economies would take effect at midnight.
Euro Benefits from Optimism on Ukraine-Russia Ceasefire
The euro strengthened, with EUR/USD rising 0.2% to 1.1689, as hopes for progress on Ukraine-Russia negotiations provided a tailwind. Reports suggested Trump could meet Russian President Vladimir Putin as early as next week, boosting speculation of diplomatic momentum.
“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 noted. “Should a truce become a more tangible prospect, EUR/USD and EUR/CHF are expected to serve as the primary channels for euro appreciation.”
In less positive news for Europe, Germany’s industrial output dropped 1.9% in June, worse than expected, suggesting that earlier production gains tied to tariff avoidance are fading.
Sterling Firms Up Before BoE Rate Decision
The British pound gained 0.2% to 1.3378, ahead of the Bank of England’s interest rate decision due later today.
Markets expect the central bank to lower rates to 4% from 4.25%, continuing its easing cycle with a fifth cut in the past year. With inflation still lingering and employment slowing, the BoE faces a delicate balancing act.
“The reaction in sterling will be primarily driven by the vote split; expect dissenters on both sides,” ING commented. “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.”
Asia FX Moves: Trade Surprises Support Yuan, Aussie
In Asia-Pacific markets, USD/JPY fell 0.3% to 146.94, despite reports—later clarified—that the U.S. may apply an additional 15% tariff on top of existing duties for Japanese goods.
The Australian dollar rose 0.4% to 0.6526, buoyed by strong June trade figures. A 6% rebound in exports helped reverse the prior month’s sharp downturn.
Meanwhile, USD/CNY dipped 0.1% to 7.1788, after trade data showed a narrower surplus than expected. But Chinese exports jumped 7.2%, far outpacing forecasts, suggesting exporters are capitalizing on a temporary lull in trade hostilities with the U.S.
Imports also rose 4.1%, an unexpected gain that highlighted resilient domestic demand despite concerns about broader economic softness.
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