Dollar Under Pressure as Markets Wait for Key Data
In the first week of September, the US Dollar Index continued its weakness, dropping to 97.536 during trading hours, marking a five-week low. Investors generally believe that the likelihood of the Federal Reserve adopting an accommodative policy at the upcoming FOMC meeting has significantly increased, reducing the demand for the dollar as a safe haven. Since August, the US Dollar Index has declined by 2.2%, with market position adjustments amplifying the dollar’s downward trend.
In the coming week, several key employment and inflation-related data will be released, including the Job Openings and Labor Turnover Survey (JOLTS), ADP employment data, and the highly anticipated non-farm payroll report. These figures will not only provide important clues about the health of the labor market but will also directly impact the Fed's policy path for September.
Rate Cut Expectations Rise Amidst Disagreements
Currently, the market broadly expects a 90% probability that the Federal Reserve will cut interest rates by 25 basis points in September, and total rate cuts may reach 100 basis points by 2026. However, disagreements remain among different institutions. Some analysts point out that if subsequent data confirms a significant economic slowdown, more aggressive rate cuts could be triggered; conversely, if inflation pressures do not ease, the scope for accommodation might be limited.
Researchers at Société Générale warn that if the job market shows resilience, expectations of a dovish stance could be tempered, leading to a short-term rebound in the dollar. Nonetheless, the overall downside risk for the dollar remains greater than the potential for upside.
Political Factors Increase Uncertainty
In addition to macroeconomic data, political friction within the United States is also making investors cautious. President Trump's attempt to remove Federal Reserve Governor Cook has sparked intense debate over central bank independence. Meanwhile, a court ruling overturning most of Trump's tariff policies has heightened concerns over the "linkage risks" between fiscal and monetary policy, despite ongoing execution details.
Analysts believe that if Fed independence continues to be challenged, policy expectations will become more difficult to gauge, and risk premiums in financial markets may be repriced. The Deutsche Bank strategy team points out that markets have yet to fully reflect the potential long-term impacts of political intervention on inflation and asset prices.
Euro and Pound Gain as Dollar Rivals Strengthen
With the dollar under pressure, other major currencies have generally strengthened. The euro rose to 1.1724 against the dollar, up 0.35%; the pound slightly increased by 0.18% to 1.3528 against the dollar. Although political risks within Europe have risen, particularly with the French government facing a confidence vote, investors still consider eurozone risks insufficient to disrupt its currency movements in the short term.
Capital flows in the foreign exchange market indicate that the appeal of the dollar as a safe haven has diminished, with some capital shifting towards the euro, pound, and gold.
Bearish Technical Patterns Evident
From a technical perspective, the US Dollar Index remains below the 50-day and 200-day moving averages, with the short-term support level of 97.556 being tested repeatedly. If it breaks below this level, the bearish target may move down to 97.109 or even further to 96.377. Conversely, resistance levels are expected between 98.317 and 98.834, likely limiting the dollar's rebound potential.
Employment Data as a Key Catalyst
Overall, the dollar's trajectory will continue to be influenced by the upcoming employment data. If non-farm payroll figures continue to be weak, bets on rate cuts will intensify, possibly leading to another round of dollar depreciation; if the data is unexpectedly strong, the dollar may rebound temporarily, but the scope will be limited.
Investors need to also monitor domestic political controversies and issues of Fed independence, as these factors may combine with macroeconomic data in the upcoming weeks, increasing market volatility.
