On Friday, the US dollar strengthened against the euro following comments from President Donald Trump that triggered risk aversion in the markets.
Political Tensions Disrupt Financial Markets
Trump announced the end of trade negotiations with Canada and hinted at possible military actions against Iran, sending shockwaves through global markets. "These messages highlight how erratic Trump is and that any assumptions built into markets can be instantly undermined," said Adam Button, chief currency analyst at ForexLive.
Canadian Dollar Weakens
The Canadian dollar fell 0.5% to C$1.37 per US dollar following Trump's response to Canada's digital services tax on tech firms. Meanwhile, US Treasury Secretary Scott Bessent stated that trade agreements with various countries could be finalized by Labor Day.
Economic Data and Fed Outlook Pressure the Dollar
Friday’s economic reports revealed an unexpected drop in consumer spending for May, contributing to bets on interest rate cuts by the Federal Reserve. Inflation data showed only moderate monthly increases, and jobless claims hit their highest level since November 2021. Federal Reserve Chair Jerome Powell indicated that rate cuts were on the table if inflation did not rise during the summer, which was interpreted as a dovish stance.
Despite the volatility in currency markets, equities closed higher. The S&P 500 and Nasdaq gained 0.5% each, while the Dow Jones Industrial Average climbed 1%.
