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The U.S. dollar saw a slight dip on Friday after a brief rally earlier in the week, with attention now shifting toward the July 9 deadline for trade deals. At 04:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six major currencies, was down 0.2% at 96.605. Despite climbing 0.4% on Thursday, the dollar is on track to post minor losses for the week as trade and fiscal uncertainties weigh on sentiment.
Dollar Reacts to Trade Negotiations and Fiscal Concerns
The U.S. currency had surged on Thursday following stronger-than-expected job data, which pushed back expectations for a rate cut by the Federal Reserve. However, this bullish momentum quickly faded as the focus shifted to ongoing trade negotiations. With the July 9 deadline approaching for U.S. trading partners to secure agreements, the market remains on edge. So far, only three trade deals have been finalized, and President Trump added to the uncertainty on Thursday by announcing that the U.S. would start sending letters specifying new tariff rates to major economies, signaling a shift away from previous attempts to negotiate individual deals.
According to analysts at ING, “The market is bracing for some more tariff-related volatility,” noting that EUR/USD volatility remains elevated for the next few weeks. This heightened uncertainty is likely to persist as the deadline draws near and tariff concerns remain at the forefront of investor sentiment.
U.S. Tax Bill Moves Forward
On the fiscal front, the House of Representatives narrowly passed President Trump’s massive tax-and-spending bill, which is expected to add $3.4 trillion to the U.S. national debt, already at $36.2 trillion. The bill includes cuts to taxes and boosts in defense and border security spending. Trump is expected to sign the bill into law on Friday, further compounding concerns about the nation’s fiscal health.
Euro Strengthens Despite Economic Data
In Europe, the euro gained 0.1% to 1.1774 against the U.S. dollar, on course for a 0.5% weekly gain. This rise came despite disappointing data from Germany, where industrial orders fell by 1.4% in May, well below expectations. The European Central Bank (ECB) had cut rates for the eighth time in a year last month, but market participants anticipate that the ECB will likely pause its rate cuts at its next meeting.
Analysts at ING noted that the ECB is now starting to show concern over the strength of the euro, with the general view suggesting that a sharp rise above 1.20 in EUR/USD would be problematic for the economy.
GBP and Yen Performance
The British pound (GBP) gained 0.1% to 1.3664 against the U.S. dollar but remains on track to post a negative week due to growing concerns about Britain’s financial stability. The government’s decision to backtrack on welfare reforms has prompted further worries about the country’s fiscal health.
Meanwhile, the Japanese yen (JPY) showed some resilience after steep losses on Thursday, with USD/JPY trading 0.4% lower at 144.36. This move followed stronger-than-expected household spending data for May, which pointed to ongoing inflationary pressures in Japan.
Chinese Yuan Weakens Despite Trade Signals
In Asia, the Chinese yuan (CNY) saw a slight decline, with USD/CNY dropping 0.1% to 7.1644. Despite signals from the U.S. about improving trade relations, including the lifting of some chip export controls on China, the yuan struggled to gain momentum. China’s new stimulus measures aimed at boosting the birth rate and mixed purchasing managers’ index data contributed to the weaker performance of the yuan.
As the market navigates the uncertainties surrounding U.S. trade policy and fiscal health, the dollar is experiencing volatility, while the euro shows relative strength. Investors will be watching closely for updates on the U.S. trade deals and the potential impact of the upcoming fiscal policies. The outcome of these factors will likely determine the direction of the markets in the coming weeks, particularly with key economic data and fiscal decisions on the horizon.
