July 30 (Reuters) - The U.S. dollar struggled for direction on Wednesday after a four-day winning streak, as investors shifted their focus to the outcome of the Federal Reserve's policy meeting later in the session and to upcoming economic data.
Meanwhile, the euro was poised to record its first monthly drop since December 2024,, following a sharp reaction to a U.S.-European Union trade deal earlier this week.
Investors were hesitant to place bets before crucial economic reports and central bank meetings in Canada, Japan and the United States.
“Markets will be paying attention to (Fed Chair) Jerome Powell’s remarks, regarding any signs of internal dissent within the committee and the chair’s stance amid ongoing tensions with the White House,” said Julien Lafargue, chief market strategist at Barclays Private Bank and Wealth Management.
“A rate cut in September remains a strong base case, much will depend on incoming data, starting with the U.S. jobs report due this Friday,” he added.
The U.S. central bank, to President Donald Trump's chagrin, will likely leave interest rates unchanged on Wednesday.
The dollar index was up 0.02% at 98.774. It hit a 5-week high at 98.923 on Tuesday and was on course to post its first month of gains this year.
Analysts noted the selloff in U.S. assets — including Treasuries and the dollar — began in early April, when the U.S. appeared poised to launch a trade war against its major allies.
Trade agreements struck with Japan last week and the EU over the weekend signalled a renewed U.S. commitment to global engagement, easing investor concerns.
Investors' focus is now on negotiations between China and the U.S. after officials agreed to seek an extension of their 90-day tariff truce.
China and the U.S remain important trade and economic partners, the Chinese commerce minister told a U.S. business delegation on Wednesday, according to his ministry.
The euro was down 0.03% to $1.1540 after dropping for the first two days of the week and hitting a one-month low of $1.15185 on Tuesday. The euro is up 11.7% since the start of the year but on course for its first monthly drop in 2025.
"The stark divergence in growth news between the U.S. and Europe should underpin the euro bearish momentum," said Francesco Pesole, forex strategist at ING.
Data showed on Wednesday that the German economy contracted in the second quarter, while France's economy beat forecasts.
Some analysts expressed concern about the economic impact of tariffs and their implications for the European Central Bank’s rate outlook.
However, markets adjusted their expectations for the ECB’s easing path, pushing back the timing of a potential rate cut to March 2026 last week, following the U.S.-Japan trade deal and an ECB hawkish tilt after its policy meeting.
“On a comparative basis, the outcome (of trade negotiations) is welcome, if not wholly reassuring (for the euro area),” said Modupe Adegbembo, economist at Jefferies.
“The EU has successfully avoided escalation and has not lost significant ground relative to other major exporters,” Adegbembo added, noting the 5% baseline tariff is more favourable than the 30% applied to Chinese goods and is on par with Japan's 15%.
The yen firmed 0.33% to 147.98 against the dollar.
The spotlight will be on comments from BoJ Governor Kazuo Ueda as investors hope the recent trade deal between Japan and the U.S. paves the way for the central bank to raise rates.
Analysts flagged that a divergence in tone from Ueda this week relative to Deputy Governor Shinichi Uchida last week, who was perceived as being hawkish, could be a catalyst for further yen selling over the near-term.
Reporting by Stefano Rebaudo; Editing by Kate Mayberry, Bernadette Baum and Ros Russell