The US dollar steadied on Monday after a sharp drop last week following comments from Federal Reserve Chairman Jerome Powell that raised expectations for a September interest rate cut. The US dollar index was marginally stronger against major currencies, with the euro down 0.2% to $1.1693 after hitting a four-week high on Friday. The pound sterling and the Swiss franc each fell 0.1%.
Expectations for more easing are rising, with Barclays, BNP Paribas and Deutsche Bank forecasting a 25 basis point cut next month. According to CME FedWatch data, traders now rate a rate cut on September 17 at 85%, up from around 70% before Powell's speech. However, concerns about the US economic slowdown and the country's fiscal position are expected to continue to weigh on the dollar, said Samy Chaar, chief economist at Lombard Odier.
So far this year, the dollar has lost more than 9.5% against a basket of six major currencies, while the euro has led the way with a gain of nearly 13%. Chaar expects the euro to strengthen to $1.20–$1.22 within six to 12 months. In Europe, bond yields have rebounded after last week’s decline, with the German 10-year bond yield rising 5 basis points to 2.77%, close to a five-month high. U.S. Treasury yields also rose modestly, with the two-year yield rising 2 basis points to 3.71%.
In addition to the Fed’s direction, investors are also paying attention to President Donald Trump’s criticism of Powell and other Fed policymakers, which has raised concerns about the central bank’s independence. Goldman Sachs analysts have warned that repeated efforts to overhaul the Fed could put pressure on longer-term bonds, with the 30-year yield remaining high at 4.9050%. Key data to watch include the PCE price index on Friday and the August jobs report due next week.
