USD Selloff Stabilises Amid Mixed ISM Data and Trump’s Federal Reserve Pick Speculation
By Matt Simpson, Market Analyst
Date: August 6, 2025
The recent selloff in the US dollar has shown signs of stabilising as market participants digest mixed economic indicators and political developments surrounding the Federal Reserve. On Monday, traders reacted to the latest ISM services report, which highlighted weak demand yet persistent inflationary pressures in the US economy, while also considering speculation around former President Donald Trump’s potential nominees to the Fed Board and possibly its Chairmanship.
ISM Services Data Paints a Mixed Picture
The Institute for Supply Management’s (ISM) non-manufacturing report revealed the US services sector barely avoided contraction in July, recording a headline Purchasing Managers’ Index (PMI) of 50.1 — just above the 50 threshold that separates growth from contraction. This marks a slight improvement from May’s 49.9 print but remains well under the sector’s 12-month average of 52.3 and significantly below the October 2023 peak of 55.8. Several underlying metrics further illustrate challenges facing the sector:
- Business Activity: Grew at a slower pace, dropping to 52.6 from 54.2.
- New Orders: Softened to 50.3, indicating muted demand.
- Employment: Contracted for the second consecutive month, falling to 46.4.
- Backlog of Orders: Contracted further, rising from 42.4 to 44.3, signaling weakening demand.
- Export Orders: Also declined, likely impacted by ongoing tariff-related trade constraints.
However, the standout figure was in inflation, with the prices paid index soaring to 69.9 — its highest level since October 2022. A wide majority (15 of 18) service industries reported increased prices, underscoring persistent inflationary pressures despite slowing activity.
Fed Fund Futures Reflect Expectations of Rate Cuts
Despite the subdued growth signals, market expectations as reflected in Fed Fund Futures remain tilted toward monetary easing. Currently, futures imply a 92.9% probability of at least one Federal Reserve rate cut by September. Nonetheless, traders have tempered their longer-term outlook, reducing bets from three cuts in 2025 to two, with the next likely 25 basis point cut expected in October, priced at 58.6%.
Last Friday’s weaker-than-expected US non-farm payrolls report intensified these expectations, triggering sharp declines in the US dollar and Treasury yields as investors factored in an easier policy stance by the Fed.
Political Headlines Add Fuel to Market Movements
Former President Donald Trump has further stirred market speculation by revealing a shortlist of four potential nominees for the Fed’s Board of Governors seat vacated by Adriana Kugler. Trump plans to finalize a choice by week’s end and indicated his nominee could be considered for the Fed Chair role.
This political development has placed Federal Reserve Governor Christopher Waller in the spotlight. Waller, a known supporter of rate cuts during the July Federal Open Market Committee meeting, emerges as a possible candidate to replace current Fed Chair Jerome Powell if Trump wins reelection. Such a dovish nominee could sustain or accelerate the market’s anticipation of monetary easing.
Technical Analysis: US Dollar Index Remains at a Crossroads
The US Dollar Index (DXY) has been climbing modestly since its low in June, recently touching the psychologically significant 100 level. The previous week saw one of the dollar’s most bullish performances since November, culminating in a strong bullish engulfing candle on the daily chart.
However, recent price action following the weak non-farm payrolls data paints a more cautious outlook. A prominent bearish engulfing candle near 100 suggests a potential reversal or swing high. The index presently consolidates in a narrow range above the 10-day and 20-day exponential moving averages (EMAs), indicating uncertainty in near-term direction.
Given the twin dynamics of political developments favoring a dovish Fed and economic data signaling softness, market observers remain skeptical about the dollar’s prospects for sustained gains. Whether recent rebounds represent corrective rallies or a definitive top is yet to be determined.
What Lies Ahead?
Market participants will continue monitoring upcoming US economic data releases alongside political developments, particularly the Fed Board nomination process which could shape the central bank’s policy direction. Inflation in the services sector remains a key variable complicating the Fed’s task, caught between easing growth and sticky price increases.
For now, the US dollar appears to have found some footing after a period of decline but faces headwinds that could limit further upside. Traders are advised to remain vigilant as fresh data and political news unfold.
About the Author:
Matt Simpson is a seasoned market analyst specializing in forex and macroeconomic trends. Follow Matt on Twitter @cLeverEdge for real-time market insights.
This article is provided for informational purposes only and does not constitute investment advice. Trading leveraged products such as futures and forex involves significant risk and may not be suitable for all investors.
For further analysis and economic events calendar, visit Smart Money Mindset Economic Calendar.