The US Dollar is facing downward pressure as inflation data aligns with expectations, giving the Federal Reserve leeway to ease monetary policy amidst signs of a softening labor market. Market participants are heavily anticipating an interest rate cut at the upcoming Fed meeting, further contributing to the dollar’s weakness.
- The dollar index steadied near 97.6 but remained under pressure.
- August CPI rose 0.4% monthly, slightly above forecasts, while the annual rate held at 2.9%, matching expectations.
- Jobless claims jumped to 263K, the highest since 2021, indicating a weaker jobs market.
- Traders are pricing in a high probability of a 25 basis point rate cut at the Fed’s September meeting.
- The US and Japan issued a joint statement on exchange rate stability.
- The European Central Bank held its benchmark rate unchanged.
- The dollar is on track to end the week slightly lower.
The confluence of factors indicates a potentially bearish outlook for the US Dollar. The expectation of imminent interest rate cuts by the Federal Reserve, coupled with concerning signals from the labor market, are eroding the dollar’s strength. While international cooperation regarding exchange rate stability may offer some support, the overall trend suggests continued downward pressure on the dollar in the near term.