The dollar index (DXY00) on Monday rose by +0.36% to a 1-week high. The dollar moved higher Monday as EUR/USD retreated after comments from Ukrainian President Zelenskiy dampened optimism of any quick resolution to the Russian-Ukrainian war when he rejected any talk of Ukraine ceding territory to Russia. Also, short-covering ahead of the US CPI report for July on Tuesday gave the dollar a boost. Gains in the dollar were limited after Fed Governor Michelle Bowman said she favors three Fed rate cuts this year.
Gains in the dollar are also limited by the negative carryover from last Thursday, when President Trump nominated Stephen Miran to be a temporary replacement for Adrianna Kugler as Fed Governor. Miran is currently chairman of the Council of Economic Advisors and is seen as dovish and supporting President Trump’s calls for lower interest rates.
On Saturday, Fed Governor Michelle Bowman said she supports cutting interest rates at the FOMC’s next meeting in September and that she favors three rate cuts this year to “help avoid a further unnecessary erosion in labor market conditions and reduce the chance that the committee will need to implement a larger policy correction should the labor market deteriorate further.”
In recent tariff news, CNBC on Monday reported that President Trump will extend the tariff truce with China, which was to expire on Tuesday, for another 90 days. Last Wednesday, President Trump announced that he will impose a 100% tariff on semiconductor imports. Still, companies would be eligible for exemptions if they demonstrate a commitment to building their products in the US. However, the US will levy a separate tax on imports of electronic products that employ semiconductors. Also, President Trump announced last Wednesday that he will double tariffs on US imports from India to 50% from the current 25% tariff, due to India’s purchases of Russian oil. Last Tuesday, Mr. Trump said that US tariffs on pharmaceutical imports would be announced “within the next week or so.” According to Bloomberg Economics, the average US tariff will rise to 15.2% if rates are implemented as announced, up from 13.3% earlier, and significantly higher than the 2.3% in 2024 before the tariffs were announced.
Federal funds futures prices are discounting the chances for a -25 bp rate cut at 88% at the September 16-17 FOMC meeting and 63% at the following meeting on October 28-29.
