The US Dollar (USD) remains highly sensitive to data, while tariff news continues to have only a limited effect. Overnight, US President Donald Trump has threatened a 35% tariff on select Canadian goods starting 1 August and floated the idea of blanket tariffs of 15–20% on most US trading partners, up from the current 10% baseline. In a letter to Canadian Prime Minister Mark Carney, Trump cited 'unsustainable trade deficits' driven by Canada’s tariff and non-tariff barriers, ING's FX analyst Francesco Pesole notes.

DXY may hold near the 97.50 level

"Yesterday’s fifth straight decline in initial jobless claims has reinforced the narrative that a sharp deterioration in the jobs market is unlikely to be what prompts the Federal Reserve to cut as soon as September. This puts even more emphasis on inflation data, due Tuesday. Consensus is centred around a 0.3% month-on-month core print, which would push the year-on-year rate slightly higher, from 2.8% to 2.9%. If it weren’t for the explicit dovishness from Christopher Waller and Michelle Bowman, and Trump’s persistent pressure on the Fed, a print like that would probably be enough to rule out a September cut. As things stand, it may take a 0.4% print for markets to fully price that out."

"Today, the Federal budget balance for June is expected at -$30bn. While a major deviation could have some FX impact, the budget story appears to have been put on the back burner by markets for the moment. Tariffs, too, continue to touch the USD only marginally. Our view remains that unless the US targets its biggest partners – China, the EU, Mexico, or Canada – with new tariffs, the USD is likely to look through this round of protectionism, with the FX fallout limited to local impacts, such as for BRL as discussed below. DXY may hold near the 97.50 level or trade modestly higher on some positioning adjustments ahead of next week’s CPI."