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US dollar weakens as markets anticipate September rate cut

by casablancadaily.com

The US dollar declined for a second consecutive session as fresh inflation data reinforced expectations that the Federal Reserve may begin cutting interest rates as early as September. The US Dollar Index (DXY) fell to 97.87, its lowest level since late July, amid growing market consensus that monetary easing is imminent. Consumer price data released for July showed headline inflation remained stable, rising 0.2 percent on the month and 2.7 percent on the year.

Dollar volatility rises as Fed policy outlook turns more uncertain

Core inflation, which excludes food and energy, increased by 0.3 percent monthly and 3.1 percent annually. While core inflation came in slightly above expectations, markets interpreted the data as broadly supportive of a more accommodative policy stance. The probability of a 25-basis-point rate cut at the September Federal Open Market Committee meeting climbed sharply following the report.

Political developments also weighed on the dollar. President Donald Trump publicly criticized Federal Reserve Chair Jerome  Powell, suggesting possible legal action over what he described as poor monetary management. The comments have added to concerns about the independence of the central bank, further pressuring the US currency.

Dollar faces political and fiscal headwinds

Fiscal issues are also contributing to dollar weakness. The US national debt has now exceeded 37 trillion dollars, with new legislative measures projected to add more than 4 trillion dollars over the next ten years. This growing fiscal burden is viewed by analysts as an additional factor undermining the dollar’s long-term strength.

Technical analysis shows the DXY trading below both the 50-period and 100-period exponential moving averages on short-term charts, indicating continued downside risk. The index is consolidating just under the 97.94 resistance level, and a move below the July 24 higher low of 97.10 could lead to further losses toward the 96.70 area. A sustained move above resistance would be needed to shift the current bearish bias.

Market pricing signals limited upside for US dollar

In foreign exchange markets, the British pound and the euro gained against the dollar. GBP/USD traded near 1.3590, its highest level in three weeks, supported by broad dollar softness and technical momentum. EUR/USD moved above 1.1700, with support from a rising trendline that has been intact since early August. Both pairs remain in short-term ascending structures, though analysts note overbought signals in the relative strength index could limit further upside without fresh catalysts.

Markets are now focused on the upcoming US producer price data. Core PPI is expected to rise to 3 percent, following a confirmed 3.1 percent increase in core CPI earlier in the week. While stronger producer prices may raise short-term concerns, the labor market outlook and political pressure for easing are currently viewed as more influential in determining the Fed’s policy path. – By Content Syndication Services.

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