US Dollar Holds as Fed Nominee Looms, US Services PMI Slips

The U.S. Dollar traded mostly flat on Tuesday, as markets remained cautious ahead of President Trump’s expected announcement on the next Federal Reserve Board nominee. The U.S. Dollar Index hovered near the 98.50 level, hold flat after recent weakness driven by disappointing labor data and rising expectations for a September rate cut.

Fed Board Nomination in Focus

President Trump confirmed that he plans to announce his nominee to fill the vacancy on the Federal Reserve Board by the end of this week, following the early resignation of Governor Adriana Kugler, effective August 8, 2025.

Kugler’s departure—months ahead of her scheduled term expiration in January 2026—has accelerated the administration’s search for a like-minded appointee. The decision could have broader implications, not only for the unexpired seat but also for the future Fed chair position.

Trump has ruled out Treasury Secretary Scott Bessent for the role, citing Bessent’s desire to remain in his current position. That leaves a shortlist of four candidates under consideration for the Fed chairmanship, two of whom have been publicly identified:

• Kevin Warsh, former Fed governor now aligned with Trump’s policy stance, and
• Kevin Hassett, current director of the National Economic Council and long-time Trump adviser.

Other potential names include Christopher Waller, a sitting Fed governor known for advocating rate cuts. Trump has also suggested that Kugler’s successor could later be promoted to chair the central bank once Jerome Powell’s term ends in May 2026. Powell is expected to remain at least until then, and possibly continue serving on the Board thereafter.

ISM Services PMI: U.S. Service Sector Slows Sharply in July

On the data front, the ISM non-manufacturing (services) PMI fell to 50.1% in July, down from 50.8% in June and below the consensus estimate of 51.5%. While the reading still indicates slight expansion, it reflects a significant loss of momentum in the services sector—by far the largest component of the U.S. economy.

US ISM Service PMI | Source: ISM, Chart: TradingEconomics

Key Sub-Index Highlights:

• Business Activity: Slowed to 52.6% (from 54.2%), though still in expansion.
• New Orders: Dropped to 50.3%, indicating cooling demand.
• Employment Index: Contracted further to 46.4%, its second consecutive month below the 50-mark.
• Prices Paid: Surged to 69.9%, the highest since October 2022, signaling persistent inflation pressures.
• New Export Orders / Imports: Fell to 47.9% and 45.9% respectively, reflecting the drag from trade tensions and rising tariffs.

Though technically still in expansionary territory, the data point to a near-stalled services sector, adding to concerns about slowing U.S. economic growth.

“This report shows that while headline figures remain in expansion, the underlying components raise fresh stagflation concerns, with rising costs coinciding with weaker business activity and soft hiring trends,” said Shawn Lee, Senior Analyst at Ultima Markets.

The disappointing services print comes on the heels of last week’s downbeat jobs report and may intensify pressure on the Fed to act in the coming months—particularly if economic softness broadens further.

What’s Next for US Dollar?

Markets have increasingly priced in a strong likelihood of a Federal Reserve rate cut in September. The dual impact of political uncertainty over the Fed’s leadership and softening economic indicators may further weigh on sentiment toward the U.S. Dollar.

However, the Dollar Index’s ability to hold steady near 98.50 suggests that investors remain cautious but are not overreacting. The greenback is likely to stay range-bound in the short term, with any significant move depending on upcoming developments—particularly the Fed nominee announcement and key inflation data.

Disclaimer

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