Karishma Vanjani

Wall Street's currency strategists are unwilling to give up on the dollar weakness call despite last month's strong performance.

In July, the dollar, as evidenced by the U.S Dollar Index, snapped a streak of monthly declines the world had not seen in eight years; July's 3.2% gain made it the best month in about three years. Investors came to terms with tariffs while gross domestic product numbers evidenced growth, reversing a chunk of the dollar's double-digit decline going into the month.

To the foreign exchange community, regardless of the recent bounce the dollar is headed lower. Friday's weak labor market data and concerns about the Federal Reserve's independence are fueling the dollar bears. Another catalyst has materialized from President Donald Trump's firing of Bureau of Labor Statistics Commissioner Erika McEntarfer, a move that has exacerbated worries about the quality of data from that agency.

"For much of the week, our Dollar views were on the wrong side of market moves," Goldman Sachs' chief foreign exchange and emerging markets strategist Kamakshya Trivedi wrote. "But the substantial revisions to the employment situation should, in turn, revise the emerging narrative that the FX reaction to tariffs has changed again." Job growth was revised lower by a surprisingly large net 258,000 for May and June on Friday.

Now the question arises as to whether the next labor market report, on Sept. 5, will be another shocker -- although its not just about the outcome but also about expectations. Declining initial response rates to surveys and staff cuts at BLS had already put the data under a harsher spotlight. Now, given that the agency's new leader will be a Trump loyalist, a strong jobs report could raise questions about whether data has been manipulated to please the president.

Market perception of a strong report could boost the dollar temporarily ahead of the release, but unreliable U.S. data give investors a reason for a longer term pullback on their dollar holdings.

At the same time, the resignation of Fed governor Adriana Kugler has opened another position that Trump can fill with an individual more in line with his thinking. Most bets are being placed on National Economic Council Director Kevin Hassett and former Fed board member Kevin Hassett.

"The replacement does not need to be appointed as the next Fed Chair, though markets will quickly assume this as a likely case if it is either Warsh or Hassett taking Kugler's spot," wrote Citi's FX strategist Daniel Tobon. This should skew calls closer toward a Fed that makes deeper and faster cuts.

"We do not think markets have fully digested the Kugler resignation impact, even if that impact is marginal," he added. "The totality of these developments leave us bearish on the USD, and we continue to see scope for a move towards 1.20 in EURUSD," Tobon said. The euro was trading at 1.16 U.S. dollars on Tuesday.

Barclays' Themistoklis Fiotakis said that the Kugler announcement has "created a new window for near-term dollar weakness," though he isn't expecting excess dollar weakness this year.

Both Goldman and Barclays favor the Japanese yen over the dollar.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.

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August 05, 2025 14:34 ET (18:34 GMT)

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