The United States dollar ended a turbulent week under pressure, as legal battles over Trump’s trade tariffs, mixed corporate data, and mixed inflation signals weighed on sentiment.
After briefly rallying above 100, the U.S. dollar index (DXY) retreated to the mid-99.00s, up 0.3% on the week while logging its fourth monthly loss and erasing nearly 10% since February’s highs.
Investors have now shifted their focus to the labour market, with May’s non-farm payrolls and other economic indicators set to offer clarity on whether the Federal Reserve will hold rates or signal cuts in the coming months.
Trade policy took centre stage last week after a U.S. federal court blocked President Donald Trump’s efforts to impose sweeping tariffs under emergency powers.
However, a federal appeals court quickly paused that ruling, allowing tariffs to temporarily remain in place while legal appeals unfold.
Though the initial court decision triggered optimism about a more stable trade environment, the reversal left markets whipsawed and investors uncertain about U.S. policy direction.
A short-term trade agreement between the U.S. and the U.K. and hopes of easing China tensions offered brief relief but failed to sustain the dollar's rise.
Meanwhile, Federal Reserve officials reiterated caution. Minneapolis Fed President Neel Kashkari warned against premature moves, citing tariff-induced inflation risks.
Euro Supported by Legal Uncertainty
The euro held firm against the dollar last week, with the EUR/USD pair closing around 1.1350.
The common currency found support as the U.S. tariff case cast doubt on Washington’s unilateral trade actions.
The ambiguity weakened the pressure on EU negotiators, limiting downside risks for the euro despite domestic catalysts.
Aussie Returns to Range Amid Weak Data and Fed Caution
The Australian dollar traded within a tight range around 0.6440 last week, down 0.9% for the week while briefly touching six-month highs, buffeted by soft economic data and technical resistance.
Retail sales and building permits in Australia disappointed, while private credit improved slightly.
However, with the RBA leaning dovish, AUD/USD’s next move may depend on breakout potential from the 0.6537 ceiling.
Cable Listless Amid Lack of Domestic Drivers
The Pound weakened slightly last week, finishing 0.7% lower at around 1.3493, as sterling failed to capitalise on a modest midweek IMF growth forecast upgrade.
While IMF officials nudged 2025 UK GDP forecasts from 1.1% to 1.2%, this optimism faded quickly without fresh UK data.
The GBP/USD pair reacted mostly to external events, including the back-and-forth tariff rulings and disappointing U.S. jobless data.
Traders are now looking to U.S. NFP figures to gauge Fed sentiment and knock-on effects on sterling.
Yen Tempered as Risk Appetite Improves
Despite multiple bearish signals, the USD/JPY pair held firm around recent levels, driven by short-covering and positive risk sentiment.
The yen's strength was further tempered by mixed Japanese economic data. While Tokyo’s CPI surprised to the upside, Bank of Japan officials remain cautious about hiking rates, citing ongoing trade uncertainty and uneven domestic growth.
The yen’s trajectory will likely be influenced by upcoming wage and spending data, though US employment results remain the dominant driver.
Economic Calendar Week Ahead
On Monday, May 26, Chinese stock markets will remain closed for the Dragon Boat Festival public holiday. In the United Kingdom, housing price figures are expected.
In the United States, data on construction spending and the ISM Manufacturing PMI will be released, while Federal Reserve officials Christopher Waller, Jerome Powell, and Lorie Logan are scheduled to deliver remarks.
On Tuesday, attention will turn to Australia, where business inventories and company gross profits data are due, accompanied by the release of the Reserve Bank of Australia's meeting minutes.
In China, the Caixin Manufacturing PMI will be published. In the Eurozone, inflation data (CPI) and the unemployment rate will be released, while in the United States, investors will review the JOLTS job openings and factory orders reports. Meanwhile, South Korea will release its latest inflation figures.
Wednesday brings Australia’s first-quarter GDP growth report, which may offer fresh insight into the Reserve Bank’s policy direction. In the United States, ADP employment changes will be in focus, along with comments from Atlanta Fed President Raphael Bostic. In Canada, the Bank of Canada will announce its latest interest rate decision.
On Thursday, the United States will publish ISM Services PMI data, weekly jobless claims, and the trade balance report. Canada will also release its trade balance, while Australia will report on its international trade performance.
From China, the Caixin Services PMI is expected, and the European Central Bank will announce its latest interest rate decision.
Finally, on Friday, Japan will publish household spending data, which could provide insight into domestic demand trends. In Europe, the third estimate of GDP growth and retail sales figures will be released.
Canada will report its latest unemployment rate, while in the United States, markets will closely watch the highly anticipated Nonfarm Payrolls and unemployment rate data for May.
