The U.S. dollar weakened further in Thursday’s Asian trading as soft economic indicators continued to pressure investor sentiment. New data showed a contraction in the U.S. services sector in May—its first in nearly a year—alongside signs of cooling in the labor market, prompting a rally in Treasuries and increasing bets on interest rate cuts from the Federal Reserve. Markets are now pricing in 56 basis points of easing this year, with a near 95% chance of a cut in September, as per LSEG data.
Highlights:
U.S. services sector contracts for first time in 11 months.
ADP payrolls data misses expectations; eyes now on Friday’s non-farm payrolls.
Dollar Index down 9% YTD, poised for weakest year since 2017.
Fed rate cut probability rises sharply; 10-year yield slips to near four-week low.
Trump’s Tariff Jolt and Fed Pressure Undermine Investor Confidence
Compounding the dollar’s fragility is ongoing trade uncertainty, spurred by President Donald Trump’s volatile tariff policy. After announcing sweeping tariffs in April, the administration paused some levies while floating new ones—rattling global markets and reinforcing risk aversion. Trump’s repeated calls for Fed Chair Jerome Powell to lower interest rates have also unsettled investors, raising fresh concerns about the central bank’s independence at a time of heightened economic sensitivity.
Highlights:
Trump intensifies pressure on Fed to lower interest rates.
Mixed trade messages spark market volatility and weaken risk appetite.
U.S. deficit and debt worries add to long-term dollar bearishness.
Euro Steady Ahead of ECB Decision as Investors Seek Easing Roadmap
The euro held firm around $1.1412, just below a six-week high, as markets awaited a widely anticipated 25-basis-point rate cut from the European Central Bank. With seven cuts already delivered in 13 months amid waning inflation, the ECB is expected to adopt a more cautious outlook, especially as energy prices drop and euro zone economic indicators show modest improvement. Strategists expect the central bank to signal a pause unless further data prompts another insurance cut in September.
Highlights:
ECB expected to cut rates by 25 bps, eighth cut in just over a year.
Market watching for guidance on future easing amid improving inflation backdrop.
Euro resilient despite diverging monetary policy from U.S. Fed.
Asia-Pacific Currencies Steady Despite Weak Growth Prints
In the Asia-Pacific region, the Australian dollar held steady at $0.6491, absorbing weak GDP figures without significant impact. The New Zealand dollar hovered at $0.603, just below a seven-month high, indicating cautious optimism among investors. Meanwhile, the Japanese yen remained steady at 143 per dollar, as currency markets adopted a wait-and-see approach amid thin volumes and global uncertainty.
Highlights:
AUD and NZD stable despite domestic economic headwinds.
Yen flat as investors avoid directional bets in low-liquidity session.
Currency markets show muted volatility pending U.S. payrolls and ECB action.
Global Trade Frictions, China Dialogue in Focus as July Deadline Looms
Investors remain wary over a lack of progress in U.S. trade negotiations, with an early July deadline approaching and high-level engagement between the U.S. and China still elusive. President Trump’s characterization of Chinese President Xi Jinping as “extremely hard to make a deal with” reignited market anxiety over stalled talks. The absence of resolution continues to weigh on the dollar, even as expectations for fiscal stimulus in Europe and Asia begin to gather momentum.
Highlights:
U.S.-China trade talks stagnant; Trump rhetoric stokes concerns.
Investors shift focus to policy responses from Europe and Asia.
Uncertainty in trade policy contributing to weak dollar and cautious asset allocation.
