Dollar heading for best week in three years; payrolls due

Investing.com - The U.S. dollar rose Friday, heading for its best week in almost three years as traders react to a relatively hawkish stance by the Federal Reserve, healthy economic data and the imposition of new U.S. tariffs on a series of trading partners. 

At 04:30 ET (08:30 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, gained 0.1% to 99.870, on course to gain around 2.5% this week, its best weekly performance since September 2022.

Payrolls in spotlight 

U.S. President Donald Trump signed an executive order on Thursday night lifting tariffs to as much as 50% on dozens of countries, with the levies now set to activate at 12:01 am on August 7.

Major industrialized economies such as the European Union, Japan and South Korea will face duties of 15%, while even higher tariffs are set to be slapped on other nations, including 50% levies on Brazil. 

Trump also increased tariffs on Canada to 35% for goods that do not comply with the U.S.-Mexico-Canada Agreement, which was signed during Trump’s first term.

However, further dollar gains have been limited Friday as traders await the release of the widely-watched monthly jobs report, as they search for clues over when the Federal Reserve will next cut rates, if at all.

The U.S. central bank chose to leave borrowing costs unchanged on Wednesday for a fifth straight meeting, even as it faced intense pressure from Trump to quickly cut rates to help boost the economy. 

Fed Chair Jerome Powell cited a "low" unemployment rate, "solid" labor market conditions and "somewhat elevated" inflation for the decision to hold, putting the payrolls numbers firmly into the spotlight .

“Fed Chair Jay Powell has placed greater emphasis on the unemployment rate, which is expected to rise marginally from 4.1% to 4.2% - hardly enough to sound the alarm on the jobs market,” said analysts at ING, in a note.

“We expect a 115k, 4.2% scenario as only marginally positive for the dollar. After this week’s big run, it could simply lead to some consolidation.”

Euro near three-week lows 

In Europe, EUR/USD dropped 0.1% to 1.1413, with the single currency trading near levels not seen since June 10 having lost nearly 3% last month. 

Data released earlier Friday showed that the downturn in German manufacturing activity eased further in July, with the HCOB final Purchasing Managers’ Index for German manufacturing, compiled by S&P Global, rising to 49.1 in July from 49.0 in June.

That marks the highest reading in nearly three years, though it still remains slightly below the 50 level denoting growth.  

The final HCOB France Manufacturing PMI survey registered 48.2 in July, slightly up from 48.1 in June but still below the 50.0 threshold, pointing to a moderate decline in operating conditions faced by French factories.

However, the day’s key economic release in the eurozone will be the July flash CPI later in the session, which is expected to show a slight easing to 1.9% in annual terms from 2.0% in June. 

The European Central Bank held rates steady at 2% last week – having cut its policy rate eight times since June 2024 – and offered a modestly upbeat assessment of the eurozone economy.

GBP/USD fell 0.3% to 1.3180, with sterling posting its weakest monthly performance in nearly two years, while USD/CHF rose 0.5% to 0.8159 after Trump set a 39% duty on Swiss imports, up from the 31% he previously mooted.  

Yen just off four-month low

Elsewhere, USD/JPY traded 0.1% lower to 150.58, slipping back after earlier climbing to around 150.91, its lowest level since March 28.

Japan’s Finance Minister Katsunobu Kato on Friday said authorities are alarmed by recent foreign exchange volatility after the sharp fall in the yen.

Bank of Japan Governor Kazuo Ueda earlier signalled tolerance for the currency weakness. He said in a meeting that current exchange rates are unlikely to have a significant near-term impact on Japan’s inflation outlook. 

That comment reinforced markets’ view that the Bank of Japan is not in a hurry to raise interest rates again, contributing to the yen’s slide.

AUD/USD fell 0.2% to 0.6428, while USD/CNY gained 0.1% to 7.2090, following a swathe of weak economic activity data this week. 

S&P Global PMI data on Friday showed China’s manufacturing sector contracted in July, coming in line with government data released on Thursday. 

The PMIs pointed to sustained weakness in Chinese business activity, which contracted despite easing trade tensions with the United States.