FOREX-US dollar gains as market awaits Fed board appointee, inflation data

By Gertrude Chavez-Dreyfuss

NEW YORK, Aug 5 (Reuters) - The U.S. dollar rose on Tuesday, but remained within sight of Friday's lows, with the market still consolidating after a weak jobs report that boosted bets of a rate cut by the Federal Reserve next month.

Investors also focused on President Donald Trump's nominations to the Federal Reserve Board, including his choice for commissioner of the Bureau of Labor Statistics.

"Where we are now is essentially settling after the (payrolls) data and you have a Fed that is ... not in a rush to cut and not really seeing any signs of inflation, or maybe just a little bit of inflation," said Eugene Epstein, head of trading and structured products, North America, at Moneycorp in New Jersey.

"So we're basically in this purgatory between now and the CPI (consumer price index) print next week. And the dollar is consolidating ... waiting for that data."

Wall Street economists expect the underlying CPI for July to have edged up to 0.3% and 3.0% on a monthly and year-on-year basis, respectively, according to a Reuters poll.

Apart from economic data, the market is also keeping an eye on the changing of the guard at the Fed, which could transform it into a more dovish central bank, in line with what Trump wants.

Trump on Tuesday said he would announce decisions soon on a short-term replacement for Fed Governor Adriana Kugler, who resigned last Friday, including his pick for the next Fed chair. He ruled out U.S. Treasury Secretary Scott Bessent as a contender to replace current chief Jerome Powell, whose term ends in May 2026.

Bessent wanted to remain in his current job, Trump said, adding that the White House is looking at four candidates to replace Powell.

"You can make the argument that a Kugler replacement is dovish for rates, and in turn, means a weaker U.S. dollar going forward," Moneycorp's Epstein noted.

In addition to Kugler's exit, Trump fired BLS Commissioner Erika McEntarfer on Friday as well after data showed weaker-than-expected employment growth in July and massive downward revisions to the prior two months' job counts. He said on Sunday he would announce a new BLS commissioner within three to four days.

WEAKENING SERVICES SECTOR

Tuesday's data, meanwhile, had little impact on the currency market.

U.S. services sector activity unexpectedly showed a flat outcome in July, with little change in orders and a further softening in employment even as input costs climbed by the most in nearly three years.

The Institute for Supply Management said on Tuesday its non-manufacturing purchasing managers index (PMI) slipped to 50.1 last month from 50.8 in June. Economists polled by Reuters had forecast the services PMI would rise to 51.5.

In afternoon trading, the euro EUR=EBS was last flat at against the dollar at $1.1569. That pushed the dollar index =USD, which measures the U.S. currency against six counterparts with the euro as the biggest component, up 0.2% at 98.81, after touching a one-week low earlier in the session at 98.609.

Amid a soft U.S. jobs report, rate futures are now pricing in a 91% chance of the Fed cutting rates at next month's meeting, compared with 35% a week earlier, according to the CME's FedWatch.

They also indicate 60 basis points (bps) of cuts by end-December and 130 bps in rate declines by October 2026, 30 bps more than the levels seen on Friday before the U.S. jobs data. FFV26

Goldman Sachs, on the other hand, expects the Fed to deliver three consecutive 25-bp rate cuts starting in September, with a 50 bp move possible if the next jobs report shows a further rise in unemployment.

In other FX pairs, the dollar rose 0.4% to 147.66 yen JPY=EBS, after minutes of a June policy meeting showed a few Bank of Japan board members said the BOJ would consider resuming rate increases if trade frictions de-escalate.

The focus, however, remains on tariff uncertainties, after the latest duties imposed by Trump on imports from dozens of countries last week increased worries about the health of the global economy.

The 15% tariff that European Union goods face when entering the U.S. is all-inclusive, a senior EU official said on Tuesday.

The Swiss franc CHF=EBS was slightly lower on the day at 0.8077 per dollar, after dropping 0.5% in the previous session.

Switzerland is looking to make a "more attractive offer" in trade talks with Washington, to avert a 39% U.S. import tariff on Swiss goods that threatens its export-driven economy.