Dollar Index is under pressure due to weak economic data and tariff storm

On the Asian session Thursday, the US dollar index hovered around 98.78, and the US dollar fell across the board on Wednesday. The previously weaker than expected private employment data in the United States highlighted the continued slowing trend of the labor market, and the U.S. service industry shrank for the first time in about a year in May. This trading day also needs to pay attention to the changes in the ECB interest rate resolution and the number of initial unemployment claims in the United States. The market expects the ECB to cut interest rates by 25 basis points. In the medium and long term, it tends to support the gold price. In addition, continue to pay attention to the international trade situation and speeches by Federal Reserve officials.

Analysis of major currencies

Dollar: As of press time, the US dollar index hovered around 98.78, and the US dollar fell across the board on Wednesday. The previously weaker than expected private employment data in the United States highlighted the continued slowing trend of the labor market, and the US service industry shrank for the first time in about a year in May. Technically, the US dollar index is still under bearish pressure. A rise above 99.392 may trigger short covers and move closer to the resistance level of 99.949, but traders are closely watching the downward breakthrough of 98.723. If it breaks through this level, it will open the door to 97.921-97.685. Given that fundamentals are bearish and data trends are weak, it is necessary for the Fed policy to turn or have major positive surprises to change market sentiment.

Euro: As of press time, the euro/dollar hovered around 1.1423, and the euro/dollar rose on Wednesday, up more than 0.42%, as the U.S. erased Tuesday after the U.S. released weaker-than-expected economic data.increase. This vifu.netbined with uncertainty caused by the trade war has pushed the pair to break through the 1.1400 mark. The EU economic schedule will report on inflation data on producers, as well as the European Central Bank decision-making and a press conference by President Christina Lagarde. Across the ocean, the U.S. agenda will include last week's initial jobless claims and speeches from Fed officials. Technically, the pair hit a lower low during the current trading session, meaning that if the daily close below 1.14, it could lay the foundation for testing 1.13. If the EUR/USD breaks through 1.1454, the next resistance is 1.1500. Further gains are above, with the next resistance at the April high of 1.1572, followed by 1.16. Conversely, if the EUR/USD falls below the June 2 day low of 1.1344, it may move towards 1.13. A breakthrough to the latter will expose the 20-day simple moving average (SMA) at 1.1284, followed by the 50-day SMA at 1.1218 and 1.1200.

GBP: As of press time, GBP/USD hovered around 1.3553, GBP/USD received a buy on Wednesday, cutting losses from the previous day and keeping the price trend at the recent range high. Buying remains firmer than 1.3500, with key U.S. non-farm employment data set to be released later this week. US dollar liquidity continues to dominate the market this week, with supply in UK economic data being thin until next week's UK employment data are released. Technically, GBP/USD has found further technical support at the 1.3500 mark to help keep buying in market trading on Wednesday. Pound bulls are starting to show pressure to maintain price highs, but bears are also weak as the pair is far ahead of the key long-term moving averages.

Summary of news from the foreign exchange market

1. Market bets on the Fed's interest rate cut

Soft economic data and trade uncertainty have significantly heated up market expectations for the Fed's interest rate cut. According to LSEG data, the market expects the possibility that the Fed will cut interest rates by at least 25 basis points at its September meeting as high as 77%. Trump has repeatedly publicly called on Federal Reserve Chairman Powell to lower interest rates, believing that the current economic environment requires looser monetary policies to stimulate growth. MonexUSA trading director Juan Perez said the unexpected weakness in ADP employment data indicates a slowing labor market, which adversely affects the dollar and also provides a basis for expectations of interest rate cuts. Although Fed officials generally say they will remain patient and observe the potential impact of tariffs on inflation, the ISM service input price index rose to 68.7 from 65.1 in April, marking November 2022The highest level since then shows that inflationary pressure still exists. JoAnne Bianco, partner at BondBloxx Investment Management, pointed out that the current market still has differences on the time when interest rate cuts, and the potential impact of tariffs on inflation has not yet been fully revealed. Against this vifu.netplex background, gold, as an asset hedging inflation and monetary policy uncertainty, is favored by more and more investors.

2. Focus on non-farm employment reports

Investors are closely following the upcoming U.S. non-farm employment reports on June 6 (Friday) to find clues to the Federal Reserve's next actions. Non-farm data is not only an important indicator of the health of the labor market, but will also directly affect market expectations of the Federal Reserve's monetary policy. If the report shows that the job market is slowing further, it may further push up interest rate cut expectations, thereby providing stronger support for gold prices. On the contrary, if the data is unexpectedly strong, it may put short-term pressure on gold prices, but overall safe-haven demand is expected to remain high.

3. Global impact of Trump's tariff policy

The Trump administration has announced a series of tariff measures on countries around the world since April 2, among which the import tariffs of steel and aluminum officially doubled on June 4, from 25% to 50%. This policy is not only aimed at China, but also applies to all trading partners except the United Kingdom, which has obtained a 90-day tariff exemption period due to a preliminary trade agreement with the United States. The new tariff measures have caused significant disturbances to global supply chains, especially in areas such as automobiles, aviation and manufacturing that rely on metal imports. The nonpartisan Congressional Budget Office warned that tariffs would slow US economic output, further exacerbating market uneasiness.

4. The US Court of Appeals prevents the Trump administration from disbanding the Ministry of Education and demands the restoration of layoffs.

On the 4th local time, the First Circuit Court of Appeals rejected the Trump administration's appeal, upholding the federal judge's ruling, demanding that the government suspend the execution of the executive order to dissolve the Ministry of Education and restore the positions of employees who were previously fired in the large-scale layoffs. Previously, the Trump administration has implemented a series of measures to promote the closure of the Ministry of Education, including large-scale layoffs. In March this year, Trump signed an executive order requiring Education Secretary Linda McMahon to take all necessary measures to promote the closure of the Ministry of Education and return the right to education management to the states. The latest ruling means that the Trump administration will not be able to advance the Ministry of Education’s restructuring plan in the short term.

5. Fed Beige Book: vifu.netmodity spending affected by tariffs has increased

The Federal Reserve Beige Book said that half of the regions reported a slight to moderate decline in economic activity, 3 regions said no change, and 3 regions reported a slight increase. All regions have pointed out that economic and policy uncertainty is at a high level, leading businesses and families to hesitate and take cautious approach in their decision-making. Manufacturing activity declined slightly. Consumer spending reports were mixed, with most regions saying spending slightly decreased or unchanged; however, some regions reported that they expected increased spending on goods affected by tariffs. Residential real estate sales have not changed much, most of themThe district’s report on new home construction shows that construction activities remain flat or slowed down. Bank loan demand and capital expenditure plans report vary. Port activity is active, but transport and warehousing activities in other regions are reported mixed. , Institutional Views

1. Deutsche Bank: Maintain expectations for the ECB terminal interest rate of 1.50%, and will raise interest rates next year

Deutsche Bank insists that the terminal interest rate of the ECB's easing cycle should be maintained at 1.50%, but also pointed out that the risk of the end of the cycle may be earlier than previously expected. As the second half of this year begins, the bank expects the market focus to shift from the near-term rate cuts to how much tightening measures may be in the vifu.neting years. Deutsche Bank raised its eurozone GDP growth forecast for 2025, from 0.5% to 0.8%, citing that the eurozone economy is still flexible despite being dragged down by U.S. tariffs. Still, it expects inflation to fall below the ECB’s 2% target in 2025 and believes there is room for further rate cuts — although it acknowledges that the final rate expectations of 1.50% are weakening. Looking ahead, Deutsche Bank believes 2026 will be a turning point, and it expects the ECB to start hikes again by the end of 2026, raising the policy rate to 1.75%.

2. HSBC: The RBI is expected to cut interest rates by 25 basis points on Friday, and will drop again in August. Economists at HSBC Global Research said that the RBI may cut interest rates by 25 basis points at its meeting on Friday, and will lower it again in August, when interest rates will drop to 5.5%. After the previous two interest rate cuts and a large injection of liquidity, the RBI has room for further relaxation of policies, but the subsequent easing will be based on interest rate tools rather than continuing to inject liquidity. Inflation may be below the target level in fiscal 2026, which will help increase real residents' income and fiscal revenue. However, the RBI may suspend interest rate cuts in October to assess the transmission effect of monetary policy on deposit and loan interest rates. Economists predict that the last rate cut may be seen in December, but whether it is implemented by then will depend on the economic growth situation at that time.

3. Goldman Sachs: Australia's economic recovery has been hindered, and calls for interest rate cuts have gradually risen in July

Goldman Sachs economist Andrew Boyak said that the momentum recovery trend of the Australian economy originally seemed to have stagnated in the first quarter of 2025, which brought downside risks to the RBA's prediction of "consumption-driven recovery." Looking ahead, the RBA may need to launch a significant easing cycle to drive sustainable growth in private demand amid the government's spending cuts. Given the current situation, there is good reason for the RBA to cut its official interest rate by 25 basis points at its next policy meeting in July.

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