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U.S. dollar falls on Fed pessimistic outlook, Powell's highly awaited speech
(MENAFN) The US dollar experienced a broad decline in early trading on Monday, notably weakening against the Japanese yen as traders anticipated a dovish tone in the minutes of the Federal Reserve's July meeting, set to be released on Wednesday. This speculation was compounded by the upcoming speech by Fed Chairman Jerome Powell at the Jackson Hole symposium on Friday, which is expected to further influence currency movements this week. In addition to the Fed's outlook, the market's attention is also focused on forthcoming inflation data from Canada and Japan, alongside PMI readings from the US, eurozone, and UK, all of which are likely to shape the week's trading activity. Against the yen, the dollar fell sharply by more than 1 percent, reaching 146.01 yen, having earlier dipped below the critical 146 yen level. Analysts have attributed this steep decline not only to the overall weakness of the dollar but also to the potential widening of the monetary policy gap between the United States and Japan.
Meanwhile, the euro was trading at USD1.1043, edging closer to a more than seven-month high of USD1.10475 achieved last week. The British pound also gained strength, rising to a one-month high of USD1.2960 earlier in the session before slightly easing to USD1.2957. The dollar index, which tracks the performance of the US currency against a basket of six major currencies, dropped to a seven-month low of 102.11, reflecting the overall weakness of the dollar. Market sentiment appears to be increasingly centered on the upcoming remarks from Powell, with traders closely watching for any indications that might shift expectations. According to the CME FedWatch tool, there is a general expectation of a 25 basis point cut in US interest rates in September, with a smaller 24.5 percent chance of a more significant 50 basis point cut. The market's reaction to Powell's speech is anticipated to be crucial, as it could either amplify or temper these rate cut expectations.
The Australian and New Zealand dollars also benefited from the market's risk-on sentiment, reaching one-month highs of USD0.6694 and USD0.6086 respectively. This upward movement was fueled by the broader expectations of a dovish stance from the Fed, which has lifted risk appetite across various asset classes. Analysts like Carol Kong, a currency expert at the Commonwealth Bank of Australia, highlighted that this week is pivotal, with Powell's speech presenting a significant opportunity to either reinforce or diminish market expectations. As traders and investors await these key developments, the currency markets are likely to remain highly sensitive to any signals regarding the future direction of US monetary policy.
Meanwhile, the euro was trading at USD1.1043, edging closer to a more than seven-month high of USD1.10475 achieved last week. The British pound also gained strength, rising to a one-month high of USD1.2960 earlier in the session before slightly easing to USD1.2957. The dollar index, which tracks the performance of the US currency against a basket of six major currencies, dropped to a seven-month low of 102.11, reflecting the overall weakness of the dollar. Market sentiment appears to be increasingly centered on the upcoming remarks from Powell, with traders closely watching for any indications that might shift expectations. According to the CME FedWatch tool, there is a general expectation of a 25 basis point cut in US interest rates in September, with a smaller 24.5 percent chance of a more significant 50 basis point cut. The market's reaction to Powell's speech is anticipated to be crucial, as it could either amplify or temper these rate cut expectations.
The Australian and New Zealand dollars also benefited from the market's risk-on sentiment, reaching one-month highs of USD0.6694 and USD0.6086 respectively. This upward movement was fueled by the broader expectations of a dovish stance from the Fed, which has lifted risk appetite across various asset classes. Analysts like Carol Kong, a currency expert at the Commonwealth Bank of Australia, highlighted that this week is pivotal, with Powell's speech presenting a significant opportunity to either reinforce or diminish market expectations. As traders and investors await these key developments, the currency markets are likely to remain highly sensitive to any signals regarding the future direction of US monetary policy.
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