Dollar poised for fifth-straight monthly drop on trade, fiscal uncertainty

CNBC

6 days ago

The U.S. dollar softened on Friday, heading for its fifth-straight monthly decline as traders braced for further bouts of uncertainty around trade and fiscal health, while investors awaited a pivotal inflation report later in the day.
The greenback had a choppy week, ending lower in the previous session after a federal court temporarily reinstated the most sweeping of President Donald Trump's tariffs, a day after a separate trade court had ordered an immediate block on tariffs.
Trump on Thursday criticized the trade court's decision and said he hoped the Supreme Court would overturn the decision.
The uncertainty around tariffs has taken a vice-like grip on the markets as investors flee U.S. assets looking for alternatives, worried that Trump's erratic policies could challenge the strength and outperformance of U.S. markets.
"The (court) decision marks the beginning of a new source of uncertainty rather than the total closure of another," said Kyle Rodda, senior financial market analyst at Capital.com, noting the mood in the markets was cautious.
Thursday's weekly jobless claims and economic growth data did little to placate worries of an economic downturn. The focus will be on the Federal Reserve's preferred inflation data - the personal consumption expenditure report - later on Friday.
Much of the month was also dominated by worries about fiscal debt levels in developed economies, highlighted by weak appetite for freshly issued longer-dated credit in the U.S. and in Japan.
On Friday, the euro was slightly firmer at $1.1378, while the Swiss franc was also stronger at 0.8216 per dollar.
The U.S. currency was set for monthly declines against the Swiss franc, the euro as well as the pound.
The dollar index, which tracks the U.S. unit against a basket of six other currencies, was muted on the day. The index was set for a decline of 0.4% in May, on course for its fifth month in the red.
On the flip side, markets have been taking notice of emerging market assets in recent weeks. An index tracking emerging market currencies has gained 2.2% for the month - its biggest one-month rise since November 2023.
On Friday, the Japanese yen firmed 0.3% to 143.73 per dollar after data showed underlying inflation in Tokyo hit a more than two-year high in May, keeping alive the chances of further interest rate hikes from the Bank of Japan.
However, the dollar is on track for a small monthly rise against the yen, its first after five previous months in the red.
Markets are also on the lookout for any fresh clues on highly anticipated trade deals as the Trump-mandated July 9 deadline on tariffs draws near.
Yields on longer-dated U.S. and Japanese bonds have eased this week, but still remain close to multi-month highs as investors question debt sustainability of the economies.
Elsewhere, the Australian dollar eased a bit to $0.6429 and was set for a marginal rise in May. The New Zealand dollar last bought $0.5973.