US Dollar Index extends downside to near 97.00 as traders assess new trade deal

• The US Dollar Index softens to around 97.15 in Thursday's early Asian session. 
• Bessent said a new Fed Chairman nominee is likely to be announced in December or January. 
• Investors await the US and China trade talks next week.

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, extends the decline to around 97.15, the lowest since July 7, during the Asian trading hours on Thursday. Risk-on sentiment from the fresh US trade deal was offset by political uncertainty surrounding Japanese Prime Minister Shigeru Ishiba's future.

Concerns over the Federal Reserve (Fed) independence might weigh on the US Dollar (USD) in the near term, as US President Donald Trump has repeatedly railed against Chair Jerome Powell and urged him to resign because of the US central bank's reluctance to cut interest rates.

US Treasury Secretary Scott Bessent said on Thursday that the announcement of a new Federal Reserve (Fed) Chair nominee is expected to occur in December or January next year. Bessent stated that there's "no rush" to identify a successor to Fed Chair Powell, adding that a nominee could potentially come from current board members or the heads of the district banks.

Bessent stated that he will meet with Chinese officials in Stockholm next week to discuss an extension to the deadline for negotiating a trade deal. Investors remain cautious on how tariff deals will play out as the August 1 deadline still looms for many countries. Any signs of renewed trade tensions could exert some selling pressure on the Greenback. 

Traders will focus on the preliminary reading of US Purchasing Managers Index (PMI) data for July, which is due later on Thursday.  The Manufacturing PMI is expected to improve to 52.5 in July from 52.0, while the Services PMI is projected to rise to 53.0 in July versus 52.9 prior. In case of a stronger-than-expected outcome, this could help limit the USD's losses. Additionally, the weekly US Initial Jobless Claims, New Home Sales, and the Chicago Fed National Activity Index will be released later in the same day.