Key points:
The U.S. dollar struggled to gain momentum on Monday, trading within a tight range against its major peers. Investors are holding their breath as they await key events later this week that could offer new insights into the future path of U.S. interest rates.
The Federal Reserve’s July policy meeting minutes and a speech from Fed Chair Jerome Powell at the Jackson Hole symposium are poised to be the primary drivers of currency market movements.
Currently, the euro is trading at $1.1026, while sterling has reached a one-month high of $1.2950. This slight pressure on the dollar reflects growing market expectations that the Fed may soon embark on an easing cycle. The dollar index (DXY), which measures the greenback against a basket of other currencies, slipped 0.06% to 102.40.
See: US dollar index on decline, trading at 102.245 on the VT Markets app.
We see here the 4-hour chart for USDX, which shows the US Dollar Index trending downward with a 0.64% decline, closing at 102.195 after opening at 102.855. The price experienced a low of 102.165 and a high of 102.305 during this period.
On the technicals, the MA (5, 10, 30) lines indicate a bearish crossover, suggesting further downside pressure. The MACD (12, 26, 9) histogram is showing red bars, confirming the bearish momentum. The price is hovering near the key support level of 102.200; if this support fails, the index could move towards the next support at 101.94. Conversely, a bounce from this level might lead to a recovery towards the 102.80 resistance area.
Traders have largely priced in a 25-basis-point rate cut in September, with a smaller, but still relevant, 24.5% chance of a 50 bp cut. The futures market suggests over 90 bps worth of rate cuts by the end of the year.
August began with turmoil in financial markets due to softer-than-expected U.S. economic data, including a weak July jobs report, which stoked fears of an impending recession.
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However, these concerns have since moderated, leading to a stabilisation in markets. As a result, traditional safe-haven assets like the yen have given back some of their early August gains.
The Japanese currency has dropped 0.2% to 147.93 per dollar, down roughly 4% from its seven-month high earlier this month. Japanese investment data released on Friday indicated a return to betting on a slow pace of rate hikes from the Bank of Japan, further weighing on the yen.
Elsewhere, the New Zealand dollar has risen by 0.16% to $0.6062, while the Australian dollar hit a one-month high of $0.66865. The Australian dollar has been bolstered by the Reserve Bank of Australia’s hawkish stance, as Governor Michele Bullock recently stated it is too early to consider rate cuts. Her comments came on the heels of the Reserve Bank of New Zealand’s first rate cut in over four years, highlighting diverging central bank policies in the region.
As the week unfolds, traders will keep a close eye on the FOMC minutes, Powell’s speech, and global economic data, including inflation reports from Canada and Japan, as well as Purchasing Managers’ Index readings across the U.S., eurozone, and UK. These events will likely shape the next moves in the currency markets.
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