Dollar slides on Fed expectations, murky trade picture

Khaleej Times

a day ago

The dollar slid on Thursday on heightened expectations of Federal Reserve rate cuts this year and lingering uncertainty over tariff battles.
Trump said on Wednesday he would be willing to extend a July 8 deadline for completing trade talks with countries, but added the U.S. would send out letters in coming weeks specifying the terms of trade deals to dozens of other countries, which they could then embrace or reject.
His comments followed earlier remarks from U.S. Treasury Secretary Scott Bessent that the Trump administration may offer extensions from a July trade deal deadline for countries negotiating in good faith.
Uncertainty over what comes next for global trade, alongside scant details of a framework agreement reached between the U.S. and China this week, dampened the overall mood in markets and gave investors more reasons to sell the dollar.
The broad fall in the greenback on Thursday pushed the euro to a seven-week high early in the session, before the common currency pared some gains to last trade at $1.1515.
Sterling rose 0.34% to $1.3583, while the yen climbed 0.4% to 143.95 per dollar.
Against a basket of currencies, the dollar fell to its weakest since April 22 at 98.284.
"It's hard to tell whether there is a masterplan behind this, but common sense would suggest that President Trump is trying to create a level of urgency in terms of trade negotiations," said Rodrigo Catril, senior currency strategist at National Australia Bank.
"I think the market, in terms of the size of the moves, is becoming a little bit more sanguine about what this all means... the market is also very wary that the picture could change quite dramatically in a week's time or two weeks' time."
Elsewhere, the dollar slid 0.44% against the Swiss franc to 0.8169.
The Australian dollar fell 0.12% to $0.6496 as risk sentiment soured, while the New Zealand dollar ticked up 0.1% to $0.6033.
Also keeping pressure on the greenback was data from Wednesday which showed U.S. consumer prices rose less than expected in May, leading traders to ramp up bets of a Fed cut as early as September.
Thursday's producer price index data will be the next test for markets.
The onshore yuan rose 0.2% to 7.1810 per dollar, though gains were capped by the still-fragile truce in the U.S.-China trade war.
"Full details have not been published, and it remains unclear if the talks brought the two largest economies closer to productive cooperation," said Mantas Vanagas, senior economist at Westpac.
Euro strength
The euro was clinging to strong gains on Thursday, having jumped against most other currencies in the previous session.
Against the yen, the common currency last stood at 165.77 having risen to its strongest since October at 166.42 yen on Thursday.
It was up 0.33% against the Aussie, extending a 0.9% gain from Wednesday, and had also touched a one-month high of 84.88 pence overnight.
While there was no immediate trigger behind the moves, analysts say the euro has over the past week drawn support from hawkish European Central Bank (ECB) rhetoric.
Last week, the ECB cut interest rates as expected but hinted at a pause in its year-long easing cycle after inflation finally returned to its 2% target.
"Expectations of fewer previously expected ECB rate cuts have lent some support to the euro," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.
That contrasts with the likely resumption of a Fed easing cycle later this year, and as Trump has repeatedly called for U.S. rates to be lowered.
Trump said last week that a decision on the next Fed chief will be coming soon, adding that a good Fed chair would lower interest rates.
The euro has risen nearly 11% for the year thus far, helped in part by a weaker dollar and as investors pour money into European markets in a move away from the U.S.