Dollar's Dive: Implications of Rate Cuts and Trade Tensions

The U.S. dollar dipped to a 3.5-year low against the euro and sterling amid expectations of deeper U.S. rate cuts. France and Spain's rising inflation curbs ECB rate cut hopes. Trump's potential early announcement of the next Federal Reserve Chair adds to market unease, while new trade deals remain elusive.

The U.S. dollar hovered above its lowest level in 3.5 years against the euro and sterling on Friday, driven by heightened expectations of U.S. rate cuts and tempered hopes of ECB easing due to elevated inflation figures in France and Spain.

Data showed French consumer prices exceeded forecasts in June, supporting the euro, while Spain's inflation index also rose, dampening prospects for an ECB rate cut. Kenneth Broux from Societe Generale noted fears of further easing were diminished with new inflation data.

The geopolitical tensions between Israel and Iran have receded, refocusing attention on U.S. monetary policy. Speculation that President Trump might pre-emptively announce the next Federal Reserve Chair added to market jitters, as expectations grow for further U.S. rate cuts this year.

(With inputs from agencies.)