The US Dollar remained mostly steady on Monday ahead of Tuesday’s deadline for a tariff agreement between Washington and Beijing, as well as an important US inflation report that could influence the Federal Reserve’s decision on interest rates next month.
The Dollar index dipped slightly by less than 0.1% to 98.164 following last week’s 0.4% decline. Against the Yen, the Dollar traded at 147.39, down 0.2%. Japanese markets were closed on Monday in observance of Mountain Day.
The Euro rose slightly by less than 0.1% to $1.1652, while the Pound remained steady at $1.3462.
The greenback continues to weaken as investors have recently lowered their expectations for Federal Reserve interest rate hikes following weak US jobs and manufacturing data, Reuters reports.
Fed officials have expressed growing concerns about the labour market, indicating they may consider a rate cut as early as September.
Slowing inflation could strengthen expectations for a rate cut next month, but if evidence surfaces that US President Trump’s tariffs are driving up prices, the Fed may decide to hold off for the time being.
“It's important to note ahead of tomorrow's data that the bar for a hawkish surprise is higher,” stated ING FX strategist, Francesco Pesole.
He added that a 0.3% monthly increase in core CPI would provide the Fed with justification to cut interest rates, especially considering the weakening labour market.
Economists surveyed by Reuters predict that core CPI rose by 0.3% in July, which would raise the annual inflation rate to 3%.
Money market traders are currently pricing in about a 90% probability of a rate cut next month, with 58 basis points of easing expected by year-end. This suggests two quarter-point cuts are likely, along with roughly a one-in-three chance of a third cut.
Recent changes in Fed personnel have also put pressure on the Dollar, as President Trump moves to appoint rate-setters aligned with his dovish stance on monetary policy, including selecting a new chair once Jerome Powell’s term concludes in May.
Trade discussions took centre stage as the 12th August deadline set by President Trump for a US-China agreement approached, with particular emphasis on chip policy.
“The market has fully priced in the idea that we're going to get an extension,” stated Chris Weston, head of research at Pepperstone Group Ltd in Melbourne.
Furthermore, as the US and China work to finalise a deal to avoid triple-digit tariffs on goods, a US official told Reuters that chipmakers Nvidia and AMD have agreed to allocate 15% of their China sales revenue to the US government in an effort to obtain export licenses for semiconductors.
“I don't know if that's going to be a good thing or a bad thing, but if it puts closure on the matter, it's not a bad outcome,” Weston added. “If this is Trump saying 15% and we'll call it a day, that may not be too bad.”