U.S. Dollar Set to End Three-Day Rise Ahead of Key Economic Data and Fed Chair Testimony
By Stefano Rebaudo, Reuters
The U.S. dollar is poised to break its three-day upward trend as market participants react to ongoing tariff discussions and prepare for important economic indicators this week. Investors are closely watching U.S. Federal Reserve Chair Jerome Powell’s testimony and upcoming inflation data, with key policy implications looming.
Tariff Threats and Market Sentiment
Despite the continued threats of increased tariffs from the Trump administration, market sentiment appears to be stabilizing. Analysts note that while the risks remain, particularly regarding potential duties on imports, there are significant fundamentals worth monitoring.
Powell is scheduled to present his semiannual monetary policy testimony before the Senate Banking, Housing, and Urban Affairs Committee at 1500 GMT. This event follows a week characterized by strong job figures that boosted U.S. Treasury yields and supported the U.S. dollar.
President Donald Trump has signaled intentions to implement substantial tariffs on steel and aluminum imports and has suggested forthcoming measures involving reciprocal tariffs against various countries, likely to be announced in the coming days.
Current futures suggest market pricing of approximately 37 basis points of potential Fed rate cuts by year-end, implying a mostly anticipated 25 basis points reduction along with a nearly 48% chance of an additional cut. However, recent commentary from Federal Reserve officials suggests a cautious approach to monetary easing as they await further clarity on the economic implications of the President’s policies.
Currency Movements
On Tuesday, the U.S. dollar index, which measures the dollar against a basket of six major currencies, dipped by 0.1%, sitting at 108.28. This decline followed a 0.37% gain last week, marking its largest daily increase in nearly a month following the positive jobs report.
Athanasios Vamvakidis, global head of forex research at Bank of America, emphasized the importance of monitoring the ongoing tariff situation. He noted, “The threat of more U.S. tariffs remains, also against the European Union. Retaliation could even lead to a tail risk scenario of a global trade war.” Vamvakidis reiterated that prolonged uncertainty surrounding tariffs could adversely affect the global economy.
In response to the administration’s tariff decisions, the European Union has stated it will enact ‘firm and proportionate countermeasures,’ further escalating tensions.
Euro and Other Major Currencies
The euro showed a slight increase of 0.15%, reaching $1.0320, while it also appreciated against the Swedish krona and the Norwegian crown. Chris Turner, head of forex strategy at ING, remarked that the current dynamics extend beyond interest rate differentials, driven by improved sentiments regarding potential ceasefire discussions in Ukraine.
The U.S. dollar experienced a modest rise against the Canadian dollar, settling at C$1.4333, although it remains significantly above a 22-year low recorded earlier this month. Canada is among the largest exporters of steel to the U.S., a position echoed by other significant exporters such as Brazil and South Korea.
On the other hand, the Japanese yen slipped by 0.15% to 152.22 per dollar, following a strong performance earlier in the month. Investors continue to gauge the contrast between yields in Japan and the U.S. currency market.
Australia’s Position on Tariffs
The Australian dollar saw a slight increase of 0.05%, reaching $0.6271. Prime Minister Anthony Albanese announced that in a recent conversation with President Trump, there was a willingness to consider exempting Australia from the steel and aluminum tariffs, framing the discussion as constructive.
Looking Ahead
As markets await Powell’s testimony and inflation data, analysts recommend keeping a close watch on both the dollar’s performance and the broader economic implications of the U.S.’s tariff strategies and international responses. The situation remains fluid, with potential global repercussions as discussions around tariffs continue to unfold.
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