The U.S. dollar weakened against major currencies on Friday, retreating after recent gains as disappointing economic data and comments from Treasury Secretary Scott Bessent fueled speculation about deeper Federal Reserve rate cuts.
The greenback lost ground across the board, with the euro climbing 0.53% to $1.1705 and the British pound strengthening 0.77% to $1.3555, marking a second consecutive week of gains. The Dollar Index (DXY) slid 0.41%, pressured by a weaker-than-expected U.S. consumer sentiment report.
The dollar’s decline was compounded by investor unease over potential political influence on U.S. monetary policy following Bessent’s remarks earlier in the week.
Fresh data underscored rising price pressures, with U.S. producer prices posting the largest increase in three years amid higher goods and services costs, signaling stronger inflation momentum. This followed earlier reports of rising consumer prices. Meanwhile, retail sales came in slightly below expectations, though upward revisions to June figures softened the disappointment.
Industrial production fell 0.1% month-on-month in July versus expectations for no change, while June’s reading was revised higher to 0.4% from 0.3%. Manufacturing output was flat in July but saw an upward revision for June to 0.3% from 0.1%.
Market attention has now shifted to the Federal Reserve’s September policy meeting. Bessent said the Fed’s benchmark rate should be 150–175 basis points lower, suggesting a 50bp cut next month. However, analysts at ING noted that markets currently price in no more than a 25bp move, adding that a larger cut would only gain traction if Jackson Hole or August jobs data signal sharper economic weakness.
In currency markets, USD/JPY was the most notable mover, falling 0.6% below 147.00 after Japan’s better-than-expected Q2 GDP reinforced speculation that the Bank of Japan could tighten policy sooner than expected. The yen also gained broadly against other G-10 and Asian currencies.
Bessent, commenting on Japan, said the BOJ is “falling behind the curve” in tackling inflation—a view echoed by analysts at Commerzbank Research.
