Comment: US recap: Dollar dips amid waning risk appetite
05/08/2025 22:18
Repeat with no changes The dollar index slipped on Tuesday as renewed tariff concerns and soft U.S. economic data dampened investor confidence. ISM's services PMI fell to 50.1, with rising input costs and weaker job data. Household debt rose in Q2, per the New York Fed, as student loan and new home borrowers faced growing credit pressures. In other data, the U.S. trade deficit narrowed to $60.2 billion in June, with the China gap hitting a 21-year low. President Donald Trump said he’ll soon announce picks for a Fed board seat and possibly the next Fed chair, confirming Treasury Secretary Scott Bessent is no longer in the running. He also reiterated his claim that Friday's jobs numbers were rigged, warned of steep tariffs on Indian imports if the country continues buying Russian oil, that he plans a small tariff on pharmaceuticals, and he may present chip tariffs in a week. Trump added that declining energy prices could pressure Russian President Vladimir Putin to halt the war in Ukraine as the August 8 deadline for peace approaches. Ukrainian President Zelenskiy confirmed a call with Trump discussing Russia sanctions and a U.S.-Ukraine drone agreement. The Trump Administration is considering additional sanctions on Russia's "shadow fleet," according to the FT. The dollar index continues to face pressure having failed to hold above its 100-day moving average last week. Turnover on Tuesday was modest and concentrated in haven and oil-linked currencies. Fed officials slated to speak on Wednesday include Lisa Cook, Susan Collins and Mary Daly. EUR/USD moved back above its 55-day moving average at 1.1565 as risk sentiment deteriorated following the ISM release. Short-dated option skews point to topside risks on bets the Fed will likely cut in September. Regional data on Wednesday includes German factory orders and EU retail sales. The EU anticipates continued trade friction with Washington, but feels protected by a new framework deal capping most export tariffs at 15%. With the agreement set to take effect soon, the bloc awaits U.S. executive orders to lower tariffs on key items like cars and auto parts. A senior EU official said implementation is expected “very soon.” GBP/USD rose amid short-covering before a widely anticipated Bank of England rate cut on Thursday. UK businesses in the services sector reported the biggest drop in new orders in July since November 2022. Despite recent dollar weakness, cable has struggled to move above its 100-day moving average, currently 1.3348. USD/JPY stayed in the middle of a 146.46-147.83 day's range as implied volatilities and bearish option skews eased. Upcoming risks include June wage date, talks on U.S. auto tariffs, JGB auctions and an LDP plenary meeting on Friday. The July low of 145.86 is support below 146, while 148 offers resistance above the 21-day moving average of 147.76. AUD/NZD settled beneath the key 1.10 level ahead of New Zealand's Q2 labor report. Separately, the GlobalDairyTrade price index climbed 0.7% in the auction held on Tuesday. Treasury yields were mixed as the curve steepened. The 2s-10s curve was down about 3 basis points to +48.0bps. The S&P 500 fell 0.34% amid broad-based losses. Oil slid 1.63% as rising OPEC+ supply and global demand worries weighed. Gold rose 0.23% as the dollar weakened, while inventory concerns sent copper down 1.16%. Heading toward the close: EUR/USD +0.05%, USD/JPY +0.38%, GBP/USD +0.10%, AUD/USD +0.08%, DXY -0.02%, EUR/JPY +0.42%, GBP/JPY +0.49%, AUD/JPY +0.45%. For more click on FXBUZ (Editing by Terence Gabriel Reporting by Robert Fullem) ((robert.fullem@thomsonreuters.com;))