[NEW YORK] The US dollar is wrapping its worst week in July as US President Donald Trump amps up his calls for interest-rate cuts amid a looming deadline for trade deals.
The greenback has weakened about 0.7 per cent since Monday (Jul 21) against a basket of currencies, putting it on track to break a two-week rally. That adds to a bruising year in which it has lost 8.5 per cent on everything from Trump’s trade war to his repeated attacks on Fed chair Jerome Powell.
“The US dollar has been reacting to increased expectations of Fed easing, which may in part reflect the pressure on Powell,” said Jane Foley, the head of currency strategy at Rabobank in London.
Trump on Friday addressed the US dollar, telling reporters he would never back a weak currency while simultaneously touting its economic benefits, particularly for US manufacturing. “I’m the person that likes a strong dollar, but a weak dollar makes you a hell of a lot more money,” he said.
Adding to pressure is sentiment in Europe, where the euro, the dollar’s biggest trading pair, has gained 1 per cent this week. European Central Bank (ECB) officials led by President Christine Lagarde, held interest rates steady and signalled the pause in the rate-cutting cycle is likely to extend further, prompting traders to pull back wagers on further easing from the ECB.
Traders are shifting their focus to a busy week that includes the latest monthly jobs report, a deadline for US trade deals and the Fed’s July interest-rate decision.
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Interest-rate swaps signal that traders see no chance of a cut next week, despite Trump’s calls for Powell to bring rates down. Powell has said policymakers want to see how tariffs impact inflation.
Tensions between the two came to a head on Thursday when the president toured construction underway at the central bank headquarters. The US$2.5 billion renovation project has become a focal point for Trump and his allies, who have criticised Powell’s handling of cost overruns.
“I’d love him to lower interest rates. Other than that, what can I tell you?” Trump told reporters, standing next to Powell. He later said firing Powell was “a big move, and I just don’t think it’s necessary”.
The Treasuries market has seen choppy trading amid Trump’s attacks and on jobs reports that have pointed to a resilient US labour market, which will influence the Fed board’s thinking on changes to monetary policy.
Traders are pricing in about 44 basis points of reductions by the end of the year with the first cut fully priced in for the October meeting. The benchmark 10-year Treasury yield was trading around 4.38 per cent on Friday, slightly lower from a week ago.
Options trading is already pointing to more losses for the US dollar next week, with a gauge of risk reversals signalling declines for the week and coming months.
Data from the Commodity Futures Trading Commission released on Friday showed non-commercial traders, including asset managers and other speculators, paring their bets against the US dollar in the week through July 22 but holding onto a net short stance. They now hold some US$14.3 billion worth of positions tied to the weakening US dollar, down from about US$17.5 billion in a week prior.
Another risk hanging over the currencies market comes from Trump’s tariffs. While the US inked a deal with Japan this week ahead of Trump’s Aug 1 deadline, Wall Street is focused on the possibility that the codification of high tariff rates will drag the greenback lower.
“We see the deals as consistent with our economists’ expectations that tariffs are moving higher, and we think this should weigh on the US dollar,” Goldman Sachs analysts, including Michael Cahill wrote this week. BLOOMBERG
