Investing.com – The US dollar rose slightly on Tuesday, but remained within a narrow range as traders stayed cautious ahead of the August 1 deadline, when countries need to sign trade agreements with the United States to avoid high tariffs.
At 03:50 ET (07:50 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, rose 0.1% to 97.675 after falling 0.6% on Monday.
The dollar moves within a narrow range
Investors are looking for progress in trade negotiations, especially between the European Union and the United States, the two largest trading blocs in the world, as the August 1 deadline approaches in less than a week.
Global tariff uncertainty has put significant pressure on the foreign exchange market, causing currencies to trade within a narrow band for most of the time.
ING analysts noted in a note: “A prevailing view may be that the USD could continue to weaken if the U.S. raises the average tariff rate, but whether the euro benefits depends on whether the EU becomes involved in a large retaliatory escalation.”
The European bloc is pushing Washington to maintain a basic 10% tariff, although this is reportedly facing opposition from the United States.
With this, more EU member states, including Germany, are considering using comprehensive “non-coercive” measures targeting U.S. services if the EU fails to reach a trade agreement, Reuters reported, citing comments from EU diplomats.
The euro awaits the ECB meeting
In Europe, EUR/USD fell 0.1% to 1.1689, with attention also turning to the European Central Bank’s rate decision later this week, as well as trade negotiations.
The ECB is widely expected to hold its main deposit rate at 2% on Thursday, after cutting rates by 25 basis points in June.
This is the eighth rate cut in a year, although it comes with signs from the ECB that it may pause in July, mainly due to uncertainty surrounding trade tensions with Washington.
‘The euro’s ability to maintain an edge over the dollar amid tariff tensions will depend on the extent of escalation and whether the EU emerges as a relatively losing side while other countries secure significant agreements with the U.S.,’ ING said.
‘We don’t see enough upside momentum to push EUR/USD back to early July highs (around 1.180), as 1.160 seems to be a more appropriate anchor compared to 1.170, due to the risk of further re-pricing tightening from the Fed.’
GBP/USD fell 0.1% to 1.3470 after data showed that the UK borrowed more than expected in June.
Net public-sector borrowing reached a total of 20.7 billion pounds in the previous month, higher than the UK’s budget watchdog, the Office of Budget Responsibility, had forecast 17.1 billion pounds in June when they released projections in March.
‘That may further increase the likelihood of raising taxes this fall, a prospect that could keep the GBP’s rally in check,’ ING said.
Political instability in Japan
Elsewhere, USD/JPY rose 0.3% to 147.87, due to increased political instability in Japan.
The ruling Liberal Democratic Party of Prime Minister Shigeru Ishiba lost its majority in the Japanese Senate in last week’s election, creating further uncertainty over Japan’s political and economic prospects.
Ishiba now faces greater challenges in his leadership role, while the LDP is also likely to encounter more obstacles in implementing planned economic reforms.
AUD/USD fell 0.3% to 0.6512 after the July meeting minutes of the Reserve Bank of Australia indicated that the central bank still leans toward further rate cuts, although it remains cautious about inflation dynamics and employment.
USD/CNY traded slightly lower to 7.1741, largely unreacted before the People's Bank of China left its policy rate unchanged on Monday.
Attention is now focusing on the country’s top governing body’s upcoming meeting, the Politburo, expected to take place at the end of this month.
