The US dollar strengthened on Friday, on track for a strong weekly gain ahead of Federal Reserve Chairman Jerome Powell's speech at the annual Jackson Hole symposium. At 04:50 ET, the US Dollar Index rose 0.1% to 98.622, poised to snap a two-week decline with a nearly 1% gain this week.
The US dollar's strength was driven by a shift in market expectations for the Fed's interest rate. A weak July jobs report had previously raised expectations for a 50 basis point cut, but that sentiment has since waned. The probability of a 25 basis point cut at the September meeting is now just 71.5%, down from 99% last week. ING analysts expect Powell to strike a cautious tone, waiting for the September 5 jobs data and the September 11 CPI before making a final decision.
In Europe, the euro fell 0.1% to 1.1593 after disappointing German growth data. The eurozone's largest economy shrank 0.3% in the second quarter, worse than previously estimated, while annual growth was just 0.2%. The revision also showed German economic output in 2023 and 2024 still below pre-pandemic levels, signaling a prolonged period of stagnation. Sterling edged up 0.1% to 1.3413, but is still down around 1% for the week.
In Asia, the Japanese yen fell to 148.57 after inflation data showed consumer prices fell in July, although core inflation remained high above the Bank of Japan's 2% target. This supported expectations that the BOJ may raise interest rates again this year. Meanwhile, USD/CNY edged up to 7.1817 after China's central bank left its benchmark lending rate unchanged, while AUD/USD strengthened 0.1% to 0.6426.
