Markets are adopting a risk-off approach ahead of the weekend. The US Dollar (USD) is narrowly mixed against the core majors but the JPY and CHF are outperforming on the day while high beta FX is tending to underperform, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD steady to slightly softer overall

"Stocks are lower in Europe and US equity futures are weaker. European bonds are slightly firmer. Markets are less concerned about the impact of President Trump’s tax and spend bill that passed Congress yesterday than his comment that letters informing countries of the tariffs that will be imposed are going out today; they will range from 10-70%, according to the president. The tariffs will be effective August 1. Negotiations have made little progress and the president is moving on, it would seem. The uncertainty of who and how much adds to USD headwinds following yesterday’s data."

"The USD gained briefly in response to the better than consensus employment report but the rise failed to stick for the most part and the DXY retains a soft undertone overall. On the plus side for the USD, the recent data run as alleviated the poor stretch of data disappointments that sunk the US “surprise index” to its lowest since last September. The data report also torpedoed any chance of a July Fed rate cut. On the negative side, and somewhat predictably, the drumbeat of Fed criticism continued. Treasury Sec. Bessent commented that if the Fed doesn’t cut in July, the September rate cut might be bigger."

"He also remarked that the 'dispersion' Fed projections was based on the nominees, suggesting the FOMC was taking a partisan approach to policy setting. There is no evidence of this but the remark supports the impression that the Trump administration could stack the Fed with people willing to implement the president’s view of rates and that may encourage foreign investors to continue to reflect on their exposure to USD assets. DXY drift from yesterday's high is challenging minor support at 96.85, ahead of key support at 96.50. With much of the US unlikely to be participating today, a more decisive move in the index may have to wait until next week."