The United States dollar index (DXY) started with minimal movement following a 0.8% decline last week, snapping a two weeks of consecutive gains as market participants looked ahead to a pivotal Federal Reserve interest rate decision and the 1 August tariff deadline.
Stronger-than-expected initial jobless claims and stable PMI readings supported sentiment around the U.S. economy, reinforcing the narrative of resilience and reducing immediate recession fears.
Meanwhile, recent progress in U.S. trade diplomacy - with deals or frameworks reached with the European Union, Japan, Indonesia, and the Philippines - boosted risk appetite and tempered downside pressure on the greenback.
Political tension briefly entered centre stage as President Donald Trump made a rare visit to the Federal Reserve headquarters last week, accompanying Chair Jerome Powell on a tour of the Fed’s US$2.5 billion renovation.
Trump used the opportunity to again criticise the central bank’s pace of rate cuts, though he stated he had “no plans” to remove Powell.
Following the meeting, Trump claimed Powell “might be ready to cut rates”, further fuelling speculation.
According to the CME FedWatch Tool, markets are widely expecting the Fed to leave rates unchanged at 4.25% - 4.50% this week, with rate cut expectations now centred on September.
Euro rises on trade progress, ECB hold
The European euro advanced nearly 1% last week, driven by positive trade news between the U.S. and the EU and diverging policy expectations between the Fed and the ECB.
While U.S. durable goods dropped 9.3% on a monthly basis, they were offset by better-than-forecast jobless claims, which lent support to the U.S. Dollar.
In contrast, the European Central Bank kept its rates steady and reiterated a meeting-by-meeting stance amid a divided Governing Council.
Looking ahead, the euro will likely take cues from Wednesday’s Fed decision and a packed European calendar, including GDP, sentiment indices, and CPI inflation figures.
Aussie retreats from YTD high
The Australian dollar surged to a year-to-date high of 0.6625 last week before easing on Friday as rising U.S. Treasury yields buoyed the greenback.
Encouraging U.S. economic data and President Trump’s reassurances regarding Fed Chair Powell have helped improve market sentiment toward the U.S. dollar.
While optimism around global trade remains supportive of risk currencies like the Aussie, attention now turns to domestic inflation data.
Australia's quarterly consumer price inflation (CPI) report and the RBA-trimmed mean CPI, both due Wednesday, will offer insight into the Reserve Bank of Australia's next policy steps.
On the international front, fresh trade talks between U.S. and Chinese officials in Stockholm could also influence sentiment.
Pound slips on mixed data and BoE pressure
The British pound lost ground to the U.S. dollar late last week, with the GBP/USD currency pair falling 1% on Thursday and Friday, bringing weekly gains to just 0.2%.
The pair came under pressure after June UK retail sales rose only 0.9%, missing forecasts for a 1.2% rise and reviving expectations of Bank of England rate cuts.
Conversely, strong U.S. labour data, including better-than-expected jobless claims, helped to support the greenback.
Durable goods orders fell 9.6% in June, largely due to aircraft-related volatility, but core orders rose 0.2%, signalling underlying strength.
Markets will watch for upcoming UK housing data and any forward guidance from the Bank of England amid rising economic uncertainty.
Yen steadies amid policy divergence
The Japanese yen posted a weekly gain of 0.8% versus the U.S. dollar but eased into the close as firmer U.S. data and policy divergence kept the USD/JPY currency pair supported.
The pair remains sensitive to U.S.-Japan interest rate differentials, particularly with both the Fed and Bank of Japan due to deliver policy decisions this week.
Japan’s Tokyo CPI data showed softer-than-expected inflation, with core and headline readings easing to 2.9% from 3.1%, potentially giving the BoJ a reason to delay tightening.
Meanwhile, the Fed is expected to stay on hold, reinforcing the yield gap that has kept USD/JPY elevated.
The BoJ commentary, along with Fed language and global macro data, will drive short-term moves.
Economic Calendar – Week Ahead
The week begins on Monday with the release of the UK CBI Distributive Trades survey, offering insight into retail activity.
On Tuesday, the European Union will publish its consumer inflation expectations, while the UK will release data on consumer credit, mortgage approvals, and total lending figures.
In the United States, attention will be on the goods trade balance, retail and wholesale inventory data, the house price index, the Conference Board’s consumer confidence survey, and JOLTs job openings, which will give a snapshot of the labour market.
Wednesday sees business confidence data from New Zealand through the ANZ survey, while Australia will report its quarterly CPI figures along with the RBA’s trimmed mean CPI measure.
China is scheduled to release its latest foreign direct investment data. In Europe, investors will assess economic sentiment indicators, GDP growth data, and measures of industrial and services confidence.
The U.S. will publish the ADP employment change report and its preliminary Q2 GDP growth estimate.
Meanwhile, the Bank of Canada will announce its interest rate decision, release its monetary policy report, and hold a press conference.
On Thursday, U.S. pending home sales figures will be released ahead of the Federal Reserve’s key interest rate decision and press conference.
In Asia, South Korea will report industrial production and retail sales, while Japan will release a series of updates, including industrial production, retail sales, consumer confidence, housing starts, and the Bank of Japan’s interest rate decision and quarterly outlook report.
Australia will report on building permits, import and export prices, private sector credit, and retail sales.
From China, markets will receive the NBS manufacturing and non-manufacturing PMIs.
In the U.S., inflation data via the PCE price index will be accompanied by personal income and spending reports, initial jobless claims, and the Chicago PMI.
The week concludes on Friday with Japan’s unemployment rate, followed by South Korea’s balance of trade figures.
Australia will report its producer price index inflation data, and China will release the Caixin manufacturing PMI.
The UK will publish nationwide house price data, while the eurozone will release CPI inflation figures.
The U.S. will round out the week with the highly anticipated non-farm payrolls report, the unemployment rate, the ISM manufacturing PMI, and the University of Michigan consumer sentiment index.
