The leading gauge of the U.S. dollar softened Thursday as upbeat German economic data lifted the euro, which is a major contributor to the index.
Trading remained relatively muted as some U.S. investors extended the midweek Fourth of July holiday. The release of the Federal Reserve’s latest meeting minutes, and any clues within as to the pace of future rate hikes, would capture market attention later Thursday.
The ICE U.S. Dollar index DXY, -0.24% was down 0.1% at 94.39. Despite Thursday’s struggles, it remains up nearly 4.7% over the past three months and up more than 2% so far this year.
The euro EURUSD, +0.4032% last bought $1.1699, versus $1.1657 late in the previous session.
Industrial orders in Germany bounced back in May to support expectations of an economic upturn, yet simmering trade and political tensions remained front of mind for many investors, seen as a potential block to the euro region’s growth just when it’s taken flight.
The reported 2.6% rise in orders exceeded expectations, and followed a survey of purchasing managers that suggested Europe’s largest economy ended the second quarter on a stronger footing.
In fact, trade concerns outweighed recent data readings as the International Monetary Fund cut its 2018 forecast for German GDP growth to 2.2%, saying protectionism and a possible hard Brexit had exposed the German economy to significant short-term risks.
“The underlying fundamentals in the euro zone remain solid. The expansion is still in the relatively early stages, and has room to run. The most recent set of data and sentiment surveys suggests that the worst may be behind us,” said Shweta Singh, managing director of global macro, at TS Lombard “There is one big caveat, however: the risk of higher trade barriers, which is already weighing on export orders and manufacturing, is rising.”
In the latest trade headlines, a U.S. official reportedly offered a “zero solution” to car tariffs. Such a deal would see the U.S. stop its threats to impose duties in exchange for the EU bloc eliminating theirs. A day earlier came reports the EU may try to broker talks between big auto producing countries to prevent tariffs from being hiked in an all-out trade war.
Read: European stocks drive higher, as tariff hopes rev up car makers
Read: How will investors know if there is a full-blown trade war? Here’s what Wall Street says
Meanwhile, the U.S. was still on course to impose $34 billion worth of duties on Chinese products Friday. China’s customs bureau said it would levy retaliatory tariffs on Friday, but not before the U.S. puts theirs into effect. China officials also cautioned that U.S. tariffs would backfire as many of the foreign companies the Trump administration is targeting are foreign, including American-owned enterprises.
One dollar last bought 6.6479 of the more freely traded offshore yuan USDCNH, +0.0271% up just under 0.1%, and 6.6384 of the more restricted onshore yuan USDCNY, +0.0693% up 0.1%.
On the data front, a busy day for data kicks off with ADP employment for June at 8:15 a.m. Eastern Time, followed by weekly jobless claims at 8:30 a.m. Eastern. Those two pieces of data come a day ahead of bigger nonfarm payroll data for June.
Read: Just because the economy is booming doesn’t mean that all is well
Also on the calendar, the final Markit services purchasing managers index for June is expected at 9:45 a.m. Eastern, while the Institute for Supply Management’s nonmanufacturing index for the same month is due at 10 a.m.
An extended summary of the Federal Open Market Committee’s June meeting will be issued at 2 p.m. Eastern. Investors will be watching for commentary on disputes over trade and if any alarm on the Fed’s part could put rate increases on hold. The interest-rate differential that sets the U.S. above its industrial counterparts has been a major driver of dollar gains this year.
