Tariff and Fed developments weigh on dollar’s recovery 

Dollar remains on the back foot, risk appetite still supported

It has been a challenging week for the US dollar. Dovish Fed expectations and renewed tariff uncertainty have contributed to the dollar surrendering a decent part of the previous week’s strong gains, even against the Antipodeans.

On the flip side, equity indices are in the green this week, with European benchmarks outperforming their US counterparts. Despite August being perceived as a soft month for stocks, investor appetite for US technology stocks remains decent, largely ignoring the broader volatile environment.

Cryptocurrencies are confirming with this muted risk-on sentiment. While bitcoin is in the red on a weekly basis, altcoins, led by Cardano and Solana, are advancing. Notably, Ether is flirting with the $4,000 level for the first time since December 2024.

Gold has also had an interesting week, gaining around 1% and extending the uptrend that began on July 30. It has risen by $100 in this period, partly reacting to the dollar’s ongoing weakness. Interestingly, there are reports that the US is going to impose levies on one-kilo gold bars, mostly refined in Switzerland, thus tightening the supply and acting as a tailwind for gold prices.

Are US-China trade tensions set to rise?

Following Wednesday’s barrage of announcements, with the market paying particular attention to chip tariffs and Apple’s bid to avoid the 50% tariff linked to its India-based factories, Thursday’s newsflow was relatively calmer across the pond. That said, Japanese officials must be feeling relieved – and the Japanese stock market clearly agrees - as the confusion regarding the US tariffs imposed on Japanese exports was resolved, with a 15% rate applied across all exports.

More importantly, the August 12 deadline for the extension of the current relatively low US tariffs on Chinese products is fast approaching. Most investors still believe that a 90-day extension is a given. But Trump has yet to accept this extension and sign the relevant executive order. Could we be getting closer to another US-China trade flare-up, with Trump using the deadline to signal he is still in control?

Miran to join the FOMC on a temporary basis

Gaining control of the Fed appears to be one of Trump's key priorities at this stage. The first step has been made, with Stephen Miran, the current Chairman of the Council of Economic Advisors, taking Adriana Kugler’s position at the Fed until January 31, 2026. Despite already been vetted for his current position, a new approval process is required, which probably means that Marin will probably take his seat at the FOMC table at the late October Fed gathering.

It will be interesting to see how the FOMC operates going forward, as Chair Powell is now surrounded by Trump allies like FOMC members Waller and Miran, feeding information back to the President and positioning themselves for the top spot when Powell steps down.

Pound rally stalls; September BoE rate cut extremely unlikely

Thursday’s Bank of England meeting proved more exciting than widely expected, breaking Governor Bailey’s tradition of relatively uneventful gatherings. Notably, for the first time since 1997, it took two rounds of voting for the 25bps rate cut to be approved, as four MPC members did not see the need for such a move. The deadlock was broken, but coupled with Bailey’s balanced rhetoric, a September rate cut appears to be out of the question, with the market pricing in a total of 18bps of easing by year-end. While Thursday’s pound rally has paused, most investment banks are now more optimistic about the pound’s medium-term outlook.