The euro slipped to $1.16 on Thursday, its weakest level in about a month, as a firmer United States dollar drew fresh demand and traders watched Brussels race to secure a trade agreement with Washington before a new round of tariffs takes effect.
Dollar strength followed fading expectations for United States Federal Reserve rate cuts this year after recent inflation readings came in sticky. Risk appetite also steadied after President Donald Trump signaled he would not remove Federal Reserve Chair Jerome Powell despite earlier criticism over the pace of policy easing, helping unwind hedges and lifting greenback positions across currency markets.
The dollar index rebounded to a three week high as companies closed out protection trades and speculative accounts rebuilt long dollar exposure. Market strategist Sean Callow of InTouch Capital Markets said any White House move to oust Powell would likely rattle investors by dragging down yields at the short end while forcing risk and inflation premiums higher on longer dated United States debt.
Trade politics remain in focus. Trump has announced a thirty percent tariff on European Union imports beginning next month but has since opened the door to talks. European officials responded by reaffirming their commitment to strike a deal, and currency desks say even a partial accord ahead of August 1 could temper downside in the euro. On policy, investors broadly expect the European Central Bank to hold rates at next week’s meeting, though pricing still reflects the chance of one additional twenty five basis point cut before year end. Euro area inflation was confirmed at 2 percent year on year in June, with core at 2.3 percent.
Elsewhere in foreign exchange, the Australian dollar slipped below $0.650 after labor data disappointed. Unemployment rose to 4.3 percent in June from 4.1 percent and net employment increased by only two thousand jobs versus expectations for twenty thousand, reinforcing forecasts for a Reserve Bank of Australia rate cut in August. Market odds now imply an eighty nine percent probability of a quarter point move as policymakers weigh rising joblessness against contained inflation.
Adding to the greenback bid, United States Treasury yields firmed, drawing safety and return seeking flows into dollar assets even as investors continued to debate the boundaries of Federal Reserve independence under political pressure.
