The US dollar held steady on Friday but was on track to record a 2% decline in August against major peers, as markets increasingly bet on a Federal Reserve rate cut next month while concerns persist over threats to the central bank’s independence.

The euro was unchanged at 1.1677 dollars, while the British pound slipped 0.2% to 1.3474 dollars. Both currencies are heading for monthly gains of over 2% against the dollar. Against the Japanese yen, the dollar was steady at 146.975.

The greenback came under additional pressure from President Donald Trump’s efforts to expand his influence over monetary policy, including his attempt this week to remove Fed Governor Lisa Cook.

Cook has filed a lawsuit asserting that Trump lacks the authority to dismiss her, along with a request for a temporary restraining order, with a hearing scheduled for Friday. The legal dispute marks the latest chapter in Trump’s push to reshape the Fed, after repeatedly criticizing the central bank and its Chair Jerome Powell for not cutting rates more aggressively.

Market reaction, however, has been relatively muted, with only modest dollar selling and minor moves along the yield curve, as investors remain focused on the near-term outlook for Fed easing.

According to CME’s FedWatch tool, markets are pricing an 86% chance of a rate cut in September, up from 63% a month ago.

Francesco Pesole, FX strategist at ING, wrote in a note: “While investors are still hesitant to trade heavily on this Fed-related story and remain focused on short-term data-driven developments, downside risks to the dollar have undoubtedly increased.”

Separately, Fed Governor Christopher Waller said on Thursday that he supports starting rate cuts next month and expects further reductions in the following months to bring the policy rate closer to “neutral.”

Investors are also awaiting Friday’s release of the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation measure. The index is expected to show an annual rise of 2.6%, unchanged from June. Tony Sycamore, market analyst at IG, said a reading of 3% or higher could raise concerns given the Fed’s recent dovish shift, though the key focus remains next Friday’s US jobs report ahead of the September FOMC meeting.

In Europe, an ECB survey showed consumer inflation expectations in July remained broadly stable at or above the central bank’s 2% target. Separate data showed French consumer prices rose less than expected in August, while Spain’s EU-harmonized inflation rate held steady at 2.7%. Pesole said: “We do not think this data will prompt markets to significantly reprice ECB rate expectations at this stage.”

Elsewhere, the New Zealand dollar edged higher after Reserve Bank of New Zealand Chair Neil Quigley announced his resignation, following the surprise departure of the central bank’s governor earlier this year.

Meanwhile, the Chinese yuan climbed to its strongest level in 10 months against the dollar, supported by official currency fixing and a rally in local equities, while the Indian rupee hit a record low amid concerns over the economic fallout from steep US tariffs on Indian imports.

Gold prices fell in Europe on Friday, retreating from a five-week high as investors booked profits and the US dollar recovered against a basket of major currencies.

Traders refrained from building new long positions ahead of the US Personal Consumption Expenditures (PCE) report, the Federal Reserve’s preferred inflation gauge, which will provide fresh signals on the path of US interest rates for the remainder of the year.

Price Overview

• Gold prices today: Spot gold fell 0.3% to 3,406.61 dollars, down from the opening level of 3,416.71 dollars, after hitting an intraday high of 3,418.57 dollars.

• At Thursday’s settlement, gold rose 0.6% to log a third consecutive daily gain and touched a five-week peak at 3,423.32 dollars per ounce, supported by a weaker dollar and lower US yields.

Monthly Performance

For August, which officially concludes at today’s settlement, gold is up around 3.5% so far, on track for its biggest monthly gain since April. The advance has been driven by rising expectations of a Fed rate cut and concerns over the central bank’s independence amid pressure from President Donald Trump.

US Dollar

The dollar index rose 0.2% on Friday, heading for its first gain in four sessions, reflecting a rebound in the US currency against major and minor peers.

A stronger dollar typically makes gold, which is priced in dollars, less attractive to holders of other currencies.

US Interest Rates

• New York Fed President John Williams said the September meeting is “open” to a rate cut decision, adding that risks are more balanced and policymakers need to wait for upcoming data.

• Fed Governor Christopher Waller reiterated on Thursday his call for lower short-term borrowing costs, saying he would support a rate cut next month followed by further reductions over the next three to six months.

• According to CME’s FedWatch tool, markets are currently pricing in an 85% chance of a 25-basis-point cut in September, with 15% odds for no change.

• For October, rate cut probabilities stand at 93%, with only a 7% chance of unchanged policy.

• To recalibrate those expectations, investors are awaiting Friday’s July PCE report, which will be critical in shaping the Fed’s monetary policy outlook.

Outlook for Gold

• Tim Waterer, chief market analyst at KCM Trade, said gold remains a favored option for investors ahead of what is expected to be a more accommodative US policy stance starting next month.

• He added that if core PCE prints at 0.3% for the month, it would remain consistent with expectations for a Fed rate cut.

SPDR Holdings

SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, increased its holdings by 5.44 metric tons on Thursday, marking a fourth straight daily rise. Total holdings climbed to 967.94 metric tons, the highest since September 8, 2022.

The euro slipped in European trading on Friday against a basket of global currencies, moving into negative territory versus the US dollar ahead of key inflation data from Germany and Spain, which are expected to provide new signals on the path of European interest rates for the remainder of the year.

Over the course of August, however, the single currency remains on track to post a monthly gain, supported by expectations of at least two US rate cuts before year-end, alongside renewed concerns about the stability of the Federal Reserve.

Price Overview

• EUR/USD fell 0.25% to $1.1656, from an opening level of $1.1683, after hitting an intraday high at the same level.

• The euro had closed Thursday up 0.4% against the dollar, marking its second gain in the past three sessions, recovering from a two-week low of $1.1574.

European Interest Rates

• Five sources told Reuters that the European Central Bank is likely to keep rates unchanged next month, though discussions of further cuts could resume in the fall if the eurozone economy weakens.

• ECB President Christine Lagarde said at Jackson Hole last Saturday that the tightening policies adopted in 2022 and 2023 did not lead to a recession or sharp rise in unemployment as had historically been the case.

• Money market pricing currently implies less than a 30% chance of a 25-basis-point ECB rate cut in September.

• Investors are awaiting today’s German and Spanish inflation releases for August, ahead of the full eurozone inflation report due early next week.

Monthly Performance

As August trading draws to a close, the euro is up 2.1% against the US dollar, set for its seventh monthly gain in the past eight months.

The monthly advance has been driven by expectations of a US rate cut in September, particularly after cautious remarks from Fed Chair Jerome Powell at the Jackson Hole symposium.

Safe-haven flows have also provided support amid growing concerns over Fed independence, following President Donald Trump’s unprecedented move to dismiss Governor Lisa Cook, a step seen as undermining confidence in the central bank and US assets.

Outlook for the Euro

At Economies.com, we expect that if German and Spanish inflation prints come in hotter than anticipated, market odds of a September ECB rate cut will fall, which could lift the euro once again against a basket of global currencies.

The Japanese yen edged lower in Asian trading on Friday against a basket of global currencies, moving into negative territory versus the US dollar after weak data showed a slowdown in Tokyo’s core inflation for August, reducing the likelihood of a rate hike by the Bank of Japan next month.

Over the course of August, however, the yen remains on track to post a monthly gain, supported by rising expectations of at least two US rate cuts before the end of the year, alongside renewed concerns about the stability of the Federal Reserve.

Price Overview

• USD/JPY rose by more than 0.1% to ¥147.11, from an opening level of ¥146.93, after hitting an intraday low of ¥146.76.

• The yen had closed Thursday up 0.3% against the dollar, marking its second gain in the past three sessions, buoyed by lower US 10-year Treasury yields.

Tokyo Core Inflation

Data released Friday showed Tokyo’s core consumer price index rose 2.5% in August, the slowest pace since March, in line with market forecasts. This compares with a 2.9% increase in July.

The slowdown in prices reduces inflationary pressure on policymakers at the Bank of Japan, diminishing the chances of further interest rate hikes this year.

Japanese Interest Rates

• Following the inflation data, market pricing for a 25-basis-point rate hike by the BOJ in September fell from 45% to below 40%.

• BOJ board member Nakagawa warned of risks stemming from trade policy and said he is awaiting the upcoming Tankan survey for guidance on the path of monetary normalization.

Monthly Performance

As August trading nears its close, the yen is up about 2.4% against the US dollar, poised to record its first monthly gain in four months.

The advance has been driven by rising expectations of a Federal Reserve rate cut in September, particularly after cautious remarks from Fed Chair Jerome Powell at the Jackson Hole symposium.

Safe-haven demand has also supported the Japanese currency amid growing concerns over Fed independence, following President Donald Trump’s unprecedented move to dismiss Governor Lisa Cook, a step widely seen as undermining confidence in the central bank and US assets.