The U.S. dollar reversed earlier losses on Friday after President Donald Trump abruptly ended trade talks with Canada and threatened military action against Iran. These unexpected moves rattled markets, boosting the greenback as investors sought safety amid rising geopolitical tension.
ForexLive’s chief currency analyst, Adam Button, noted that Trump’s unpredictability continues to undermine market assumptions. While the dollar initially gained on safe-haven demand, Button warned the rally may fade as the trade war has weighed on the currency throughout the year.
The Canadian dollar dropped 0.5% to C$1.37 after Trump cited Canada’s digital services tax as the reason for halting negotiations. Meanwhile, Trump criticized Iran’s leadership and said he might resume bombing if uranium enrichment continues.
Earlier, the dollar fell to a three-and-a-half-year low against the euro, driven by expectations of more aggressive Federal Reserve rate cuts due to weak economic data. Reports showed a dip in U.S. consumer spending in May and a sharp rise in unemployment claims, with GDP revisions highlighting weaker consumption.
Fed Chair Jerome Powell’s recent congressional testimony was seen as dovish. Additionally, speculation that Trump may replace Powell with a more dovish candidate has intensified market expectations of rate cuts. Traders now price in 65 basis points of cuts by year-end, up from 46 points a week ago.
The dollar index remained flat at 97.36 but is set for a 1.4% weekly loss, its worst since mid-May. The euro hit $1.1754, its highest since 2021, and sterling rose 1.85% for the week. Against the yen, the dollar gained slightly to 144.65 but still posted a 0.94% weekly drop.
Bitcoin dipped 0.86% to $106,879.
