Dollar assailed on all sides as August approaches

The US Dollar, during mid-July, looked like it could break a 6 month losing streak and with the Dollar Index already -10.70% down YTD by July 1st, it wasn’t a second too late for the Greenback.

US jobs added data printed 38% above expectations and unemployment stayed static at 4.1%, whilst recent retail sales data doubled expectations to show Americans still opening their wallets despite the turmoil.

Chart courtesy of Bloomberg

All was well, until tariff discussions took over, with no major news about how ongoing US-EU or US-Japan negotiations were progressing. The President, timely as always, took this as an opportunity to muddy the waters further by again harassing Fed Chairman Powell from the sidelines, calling the Chair a “blockhead”. All of this confusion ruined the pleasant “stronger economy, stronger Dollar” that Dollar bulls had been cultivating.

Treasury Secretary Scott Bessent didn’t help with his comments in an interview yesterday, stating that he sees “no reason” for Powell to step down right this moment, which is a good start.

But he ruined this early success by muddling his way through questions regarding tariffs, downplaying the importance of the August 1st deadline Trump set for countries to finalize trade deals. Remember, would mean a third deadline blown through, cutting to ribbons the credibility the President hoped the deals would give his Administration in financial markets. Bessent reiterated that the Chinese had until the 14th to finish the final draft of their deal and that multiple countries could have extensions of “weeks”.

Chart courtesy of Bloomberg

The last thing Dollar traders needed was a longer sentence in this tariff purgatory, but that’s exactly what they have got. Risk reversal shows puts exceeding calls across USD pairs, suggesting most of the market is positioned for the Dollar to move lower by this time next month. Much of this owes to the breadth of issues threatening USD at present, the foremost being the Federal Reserves interest rate meeting on July 30th, where a cut is a remote prospect, but a serious dovish pivot from Fed members seems very likely.

Trump’s stomping from the sidelines has rattled its way though the members, with Governor Chris Waller having declared his interest in the Chairmanship and other members possibly lining up runs for the coveted spot, we could assume they would look to satisfy Trump’s calls for cuts in order to advance their own bids.

Powell’s term is up in May of 2026, but ambition knows no time and its never too early to ingratiate yourself with the man making the decision.

Furthermore, questions over whether Powell will even see out his term and broader questions over the Fed’s independence will linger, sapping USD energy in August. More tariff confusion and delay will act to drag down the Dollar further, perhaps turning retreat to rout.

Presently, the Dollar Index is holding stoically above the 97 handle, but with pressures, old and new, circling, July could just be the 7th month of consecutive weakening, rather than the turnaround it looked to be.