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Dollar drops, but on track for weekly gain

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Focus on Fed policy as Trump attacks Powell

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Yen edges up ahead of Japanese elections

(Updated in New York morning time)

By Karen Brettell

NEW YORK, July 18 (Reuters) - The U.S. dollar slipped on

Friday but held onto weekly gains, as investors weighed signs

that tariffs may be starting to increase some inflation

pressures along with expected Federal Reserve policy as U.S.

President Donald Trump increases pressure on Chair Jerome

Powell.

Data on Tuesday showed that consumer prices rose in June,

though the increase was seen as moderate. Wednesday's producer

price inflation report, meanwhile, showed that prices were

steady last month.

Powell has said he expects inflation to rise this summer as

a result of Trump's tariff policies, which has pushed out

expectations on when the U.S. central bank is likely to cut

rates.

But the labor market is showing signs of weakness even as

headline job gains and the unemployment rate remain relatively

solid.

"We're waiting on the tariffs to become real and not just a

negotiating ploy and waiting on the labor market to reveal

itself," said Lou Brien, strategist at DRW Trading in Chicago.

"Layoffs are at a lower level than they were pre-pandemic,

but the hiring is terrible. And if, all of a sudden, the layoffs

come up, we're going to get a significant increase in the

unemployment rate very quickly," Brien said.

Fed governor Chris Waller said on Friday that he favors a

rate cut at the July meeting because he feels the tariffs are

likely to have a limited impact on inflation. He added that

underlying data "are not indicating a super healthy private

sector labor market," and the Fed should "get ahead" of a

possible hiring slowdown.

Waller's comments come amid near daily criticism by Trump of

Powell over the Fed's reluctance to cut rates. The dollar

tumbled on Wednesday on reports that Trump was planning to fire

the Fed Chair, but rebounded after Trump denied the reports.

Powell's term will end in May.

Fed funds futures traders are pricing in 45 basis points of

cuts by year-end, implying that two 25 basis point cuts are seen

as most likely, with the first coming in September.

The dollar index was last down 0.26% on the day at

98.25, and is on track for a 0.39% weekly gain.

The euro gained 0.49% to $1.1652 but is headed for a

weekly drop of 0.31%.

Sterling rose 0.27% to $1.3451 and is heading for a

weekly decline of 0.32%.

The Japanese yen, meanwhile, was slightly higher against the

greenback heading into Sunday's upper house election in which

Japan's ruling party looks vulnerable.

The dollar weakened 0.09% to 148.46 yen, but is on track for

a weekly gain of 0.71%.

Polls suggest Japan's ruling coalition is at risk of losing

its majority, which would stir policy uncertainty at home and

complicate tariff negotiations with the United States.

U.S. Treasury Secretary Scott Bessent told Japanese Prime

Minister Shigeru Ishiba that their countries can reach a "good

agreement" on tariffs, Ishiba said on Friday after meeting

Bessent in Tokyo.

In cryptocurrencies, bitcoin fell 0.78% to $118,552,

holding below a record $123,153 reached on Monday.

The U.S. House of Representatives on Thursday passed a bill

to create a regulatory framework for U.S.-dollar-pegged

cryptocurrency tokens known as stablecoins, sending the bill to

Trump, who is expected to sign it into law.