Title: USD Holds Near Six-Month High as Traders Look Ahead to Economic Data and Central Bank Moves
By Mitrade (Original article by Mitrade News Team)
Original source: https://www.mitrade.com/insights/news/live-news/article-1-1090019-20250903
As the week begins, the US dollar maintains its upward momentum, hovering near a six-month high. Investors remain cautious as they assess the potential for further interest rate moves by central banks, especially the US Federal Reserve. Currency markets are experiencing measured trading conditions, with traders positioning themselves ahead of several key economic data releases and ongoing concerns over inflation and growth.
Dollar Strength Unrelenting
Monday’s trading reflects continued confidence in the strength of the US dollar. The greenback has posted gains against most major currencies, bolstered by:
– Firm US economic data in recent weeks
– Rising US Treasury yields
– Expectations that the Federal Reserve may hold interest rates higher for longer
The dollar index (DXY), which measures the currency against a basket of six peers, hovered around 104.20 during Asia trading hours, marking its highest level since early March. It has now risen for eight consecutive weeks, a winning streak not seen since 2014.
Week Ahead: Event-Driven Focus
Currency markets are expected to remain largely rangebound at the beginning of the week, but several high-impact economic events could drive significant movement toward the end of the week. Key data and central bank activities scheduled include:
– US ISM Services PMI (Tuesday)
– Bank of Canada (BoC) policy meeting (Wednesday)
– Australia’s Q2 GDP data (Wednesday)
– Eurozone Q2 GDP update (Thursday)
– China’s inflation and trade data (Friday)
These datasets are expected to influence investor sentiment and provide more clarity on whether central banks in North America, Europe, and Asia will continue their tightening policies or opt for pauses.
Fed Policy Outlook: Staying Higher for Longer?
The Federal Reserve’s carefully calibrated policy communication has left markets uncertain but leaning toward the scenario where rates stay elevated longer than initially expected. Despite softening inflation figures, the robustness of the US economy gives the Fed room to maintain a hawkish tone.
Key points fueling dollar strength include:
– Nonfarm payroll numbers released last Friday indicated 187,000 new jobs in August, beating forecasts and reinforcing expectations of labor market resilience.
– The unemployment rate surprisingly rose to 3.8%, but this was attributed to greater labor force participation.
– The Fed Funds Futures market now prices in a 93% chance that rates will remain unchanged at the September 20 meeting. However, the odds for a hike in November have increased slightly.
Analysts suggest that unless inflation reaccelerates dramatically, or significant weakness appears in job market figures, the Fed may opt for caution. Yet, the possibility of one more hike before the end of the year remains on the table.
Euro and Sterling Struggle Under Pressure
The euro and British pound remain under pressure against the US dollar. The shared currency, the euro (EUR/USD), was last seen trading near 1.0780 after dipping to a three-month low last week. It has lost 1.8% in August alone.
Factors contributing to euro weakness include:
– Muted economic growth prospects in the Eurozone
– Concerns over persistent inflation
– A possible nearing peak in European Central Bank (ECB) interest rates
The ECB is set to meet on September 14. Market pricing indicates about a 25% probability of a 25bps rate hike, down from earlier expectations of more aggressive moves in the second half of the year.
Similarly, the British pound (GBP/USD) is trading near 1.2590. It has retreated from July highs due to:
– Persistent inflation, but also signs of weakening consumer demand
– Mounting concerns about stagflation in the UK economy
– Market reassessment of how far the Bank of England can
Explore this further here: USD/JPY trading.