The US dollar remained confined within its recent trading range on Wednesday, as investors chose to stay neutral following another round of weak US economic data and ahead of President Donald Trump’s upcoming appointment to the Federal Reserve Board.
Trump said on Tuesday that he would decide on a nominee to replace outgoing board member Adriana Kugler by the end of the week, and has narrowed the shortlist for the next Fed Chair — to succeed Jerome Powell — to four candidates.
That same day, data showed that US services sector activity remained unexpectedly flat in July, while input costs surged at their fastest pace in nearly three years, highlighting the economic impact of Trump’s tariffs, which are also starting to weigh on corporate profits.
Still, traders were cautious about entering new positions until the Federal Reserve’s direction becomes clearer, amid growing concerns that partisan loyalty could creep into the traditionally reserved and independent world of monetary policy.
The dollar last rose by 0.1% against the Japanese yen to 147.78, while the euro held steady at $1.1577. The British pound slipped 0.1% to $1.329.
Francesco Pesole, strategist at ING Bank, wrote in a research note: “Trump’s public attacks on the Bureau of Labor Statistics over job data revisions haven’t had a major market impact so far, but it’ll be telling if the new Fed Chair nominee echoes that narrative. If that happens, it could fuel fears of the Fed disconnecting from official data — a scenario we view as clearly negative for the dollar.”
Although the dollar’s moves have been quiet this week, the currency has yet to recover from Friday’s sharp losses — its biggest single-day drop in nearly four months — after a troubling jobs report.
Trump had fired BLS Commissioner Erica McEnturfer last week following the release of July’s jobs report.
The dollar rose by 0.1% against a basket of currencies to 98.785, still well below Friday’s high of 100.25, reached just before the nonfarm payrolls data was released.
Markets are still pricing in an 86.5% chance of a Fed rate cut in September, with roughly 56 basis points of easing priced in by year-end.
However, data such as Tuesday’s ISM services PMI highlights the complexity of the Fed’s challenge — balancing price pressures from Trump’s tariffs with signs of a weakening US economy.
Ray Attrill, head of FX strategy at National Australia Bank (NAB), said: “The ISM services index clearly smells of stagflation… and that’s a double-edged sword in terms of monetary policy implications.”
He added: “For now, we think the market may be showing too much confidence in a September move being a done deal.”
US Treasury yields rose, with the 10-year yield climbing 4.2 basis points to 4.238%, and the 2-year yield rising 2.9 basis points to 3.774%, after a $58 billion auction of three-year notes that analysts viewed as relatively weak, with a bid-to-cover ratio of 2.53.
More auctions are scheduled this week, including $42 billion in 10-year notes on Wednesday and $25 billion in 30-year bonds on Thursday.
Among other currencies, the Australian and New Zealand dollars both rose 0.3%, with the Aussie reaching $0.64895 and the Kiwi at $0.59181.
