Dollar Dips Slightly, But Set for Second Weekly Gain on Strong U.S. Economic Data
The U.S. dollar edged lower on Friday but remained on track to post its second straight weekly gain, buoyed by robust economic data that reinforced expectations the Federal Reserve may delay interest rate cuts.
As of 04:15 ET (08:15 GMT), the U.S. Dollar Index—which measures the greenback against six major currencies—was down 0.4% at 98.100, yet still headed for a 0.7% weekly gain, following a nearly 1% rise the week prior.
Dollar Strength Underpinned by Solid Data
Investor demand for the dollar has increased recently, driven by signs of resilience in the U.S. economy, suggesting the Fed may take longer than anticipated to begin loosening monetary policy.
Data on Thursday showed a strong rebound in June retail sales and a drop in weekly jobless claims to a three-month low, while earlier reports indicated consumer prices rose at the fastest pace in five months, possibly reflecting the impact of newly imposed tariffs.
According to ING analysts, the return of the dollar’s “functionality” should prevent major selloffs—barring major disruptions such as President Donald Trump dismissing Fed Chair Jay Powell (which temporarily shook markets earlier this week), or a significant escalation in protectionist measures, especially against China.
ING added: “We don’t expect either scenario, and still see moderate dollar strength ahead as markets unwind the 14 basis points priced into the Fed’s September contract.”
Markets now expect around 45 basis points of Fed rate cuts for the rest of 2025, down from roughly 50 basis points earlier this week.
Friday’s Economic Calendar and Global FX Moves
Investors are also watching for U.S. housing data and the University of Michigan’s consumer sentiment survey later in the day.
Sterling Slips Despite Rebound; Euro Firmer
The euro (EUR/USD) recovered 0.3% to 1.1623, bouncing from Thursday’s three-week low of 1.1556, but remained on course for a 0.6% weekly loss.
In Germany, producer prices declined 1.3% year-over-year in June, as expected. Meanwhile, final eurozone inflation data confirmed consumer prices rose 2.0%, in line with the European Central Bank’s (ECB) target.
Given muted underlying inflation in Germany, the ECB may have room to cut rates, but that decision could be complicated by President Trump’s proposed 30% tariff on EU imports.
While the ECB has signaled it is likely to hold rates steady at its July meeting, ING noted the meeting “may be less uneventful than expected,” given the growing tariff risks and euro strength.
The British pound (GBP/USD) rose 0.2% to 1.3432, but was still headed for a 0.5% weekly loss, as dollar strength weighed. Recent UK data revealed a rising jobless rate and a contraction in May GDP, increasing pressure on the Bank of England to continue cutting rates.
Yen Pressured by Political Uncertainty
The Japanese yen (USD/JPY) inched up 0.1% to 148.63, with the currency on course for a 0.8% weekly loss amid concerns that Japan’s ruling coalition may fail to secure a parliamentary majority.
Such an outcome could empower opposition parties pushing for cuts to the consumption tax, aimed at relieving pressure on households facing rising costs.
Friday data showed that while core inflation in Japan eased in June, it still remained above the Bank of Japan’s 2% target.
Other Currency Moves
- AUD/USD rebounded 0.5% to 0.6516, after hitting a three-week low earlier in the week on the back of weak employment figures, which strengthened speculation of an RBA rate cut.
- USD/CNY edged down 0.1% to 7.1782, with minor movement amid muted policy signals from China.
