The dollar is headed for its best week in three years

The US dollar is rising, heading for its best week in nearly three years, as traders react to the Federal Reserve’s relatively hawkish stance, good economic data and the imposition of new US tariffs on a number of trading partners.

At 04:30 ET (08:30 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 99.870, on track to rise about 2.5% this week, its best weekly performance since September 2022.

Salaries in the spotlight

US President Donald Trump signed an executive order on Thursday evening to eliminate tariffs of up to 50% on dozens of countries, with the tariffs set to take effect at 12:01 a.m. on August 7.

Major industrialized economies such as the European Union, Japan and South Korea will face tariffs of 15%, while other countries will face even higher tariffs, including a 50% tariff on Brazil.

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

However, further gains for the dollar are limited on Friday as traders await the release of the widely watched monthly employment report while looking for indications of when the Federal Reserve will cut rates, if at all.

Federal Reserve Chairman Jerome Powell cited “low” unemployment, “solid” labor market conditions and “somewhat elevated” inflation as reasons for the decision to keep benchmark measures in place, which put employment data in the spotlight.

Euro nears three-week lows

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

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

That’s the highest level in nearly three years, though it still remains just below the 50 level that signifies growth. The European Central Bank kept interest rates unchanged at 2% last week – after cutting its key rate eight times since June 2024 – and offered a moderately upbeat assessment of the eurozone economy.

The yen is just below its four-month low

Elsewhere, USD/JPY was trading down 0.1% at 150.58, easing after earlier rising to around 150.91, its lowest level since March 28.

Japanese Finance Minister Katsunobu Kato said on Friday that authorities were concerned about recent volatility in the foreign exchange market following the sharp decline in the yen.

Bank of Japan Governor Kazuo Ueda has previously signaled tolerance for currency weakness, telling a meeting that current exchange rates are unlikely to have a significant impact on Japan’s inflation outlook in the near term.

This comment reinforced the market view that the Bank of Japan is in no hurry to raise interest rates again, contributing to the yen’s decline.

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