Dollar softness came despite higher U.S. Treasury yields, as investors focused instead on escalating political risk tied to upcoming Federal Reserve nominations.
President Trump confirmed a decision is imminent on a replacement for outgoing Fed Governor Adriana Kugler, while speculation swirls over Fed Chair Jerome Powell’s potential successor. Markets are wary of increasing political influence at the central bank, especially after Trump’s dismissal of BLS commissioner Erika McEntarfer following an unfavorable July jobs report.
ISM Services Data Fuels Stagflation Worries
Tuesday’s ISM services print added fuel to bearish USD sentiment. The headline index slipped to 50.1 in July, undercutting both June’s 50.8 and the 51.2 consensus. Beneath the surface, the price index surged to 69.9, its highest level since early 2022, while employment contracted further to 46.4. Deutsche Bank analysts called the data “worrisome,” citing stagflation concerns exacerbated by Trump’s tariff escalation.
New U.S. tariffs on India — an additional 25% duty imposed Wednesday — pushed the total levy to 50%, citing India’s continued import of Russian oil. The White House also threatened steeper penalties if these purchases persist, a move that adds geopolitical risk and further complicates the Fed’s policy calculus.
