The US dollar rose slightly on Monday, but struggled to recover from the sharp drop triggered by dovish shifts (toward rate cuts) announced by Federal Reserve Chairman Jerome Powell, which opened the door to a rate cut in the world’s largest economy next month.

The euro declined by 0.1% to 1.1701 dollars, but remained close to Friday’s peak of 1.174225, its highest level since July 28. Both the British pound and Swiss franc also fell by about 0.1%.

In a highly anticipated speech at the Fed’s annual Jackson Hole symposium on Friday, Powell signaled the possibility of a rate cut at the central bank’s meeting next month, saying labor market risks were increasing while inflation risks remained.

Major brokerages such as Barclays, BNP Paribas, and Deutsche Bank now expect a 25-basis-point cut in September following Powell’s remarks. In contrast, analysts at Bank of America remain committed to their forecast that the Fed will keep rates unchanged next month, though they acknowledged that the risks have shifted toward easing.

They said in a note: “We see a risk that the Fed could make a policy mistake by cutting rates at a time when activity is recovering and inflation is approaching 3%.”

Futures pricing shows traders now assign a 87% probability of a quarter-point rate cut on September 17, up from around 70% before Powell’s speech, according to the CME FedWatch tool.

Among the key data awaited this week is the Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, due Friday, along with August jobs data scheduled for release a week later.

In addition to expectations for the Fed’s easing path, the dollar was also pressured by US President Donald Trump’s attacks on Powell and other Fed members, raising concerns over the central bank’s independence. Trump recently criticized board member Lisa Cook, saying Friday that he would fire her if she did not resign over allegations related to mortgages she owns in Michigan and Georgia.

Chinese yuan rebounds

In other markets, the Chinese yuan jumped to its strongest level in a month, supported by dollar weakness. The dollar rose slightly against the Japanese yen to 147.17 after having fallen 1% on Friday.

Bank of Japan Governor Kazuo Ueda said during Jackson Hole on Saturday that wage increases were starting to spread beyond large companies, and were likely to continue accelerating amid tightening labor market conditions.

These remarks bolstered market expectations that the Bank of Japan will resume interest rate hikes soon, after having paused following January’s increase to assess the impact of the aggressive global tariffs imposed by Trump.

Ho Min Lee, chief macro strategist at Lombard Odier, sees the yen strengthening to the low 140s against the dollar over a 12-month horizon, but expects it to remain volatile within a narrow range in the near term. He said: “We assume the next rate hike window for the Bank of Japan will be January next year, not October. The bank is likely to keep real interest rates in negative territory until the end of the year before considering gradual increases thereafter.”

Traders currently estimate about a 50% chance of a Bank of Japan rate hike at the October meeting.

Cryptocurrencies

In digital currency markets, ether fell about 4% on Monday after hitting a record high of 4,955.14 dollars over the weekend. Bitcoin dropped about 1% to 111,702 dollars.

Gold prices fell in the European market on Monday at the start of the week’s trading, retreating from Friday’s near two-week high, under pressure from profit-taking and a rebound in the US dollar against a basket of global currencies.

Following Fed Chair Jerome Powell’s comments at Jackson Hole, which boosted expectations of a US interest rate cut in September, investors this week await further evidence on potential monetary easing in the United States.

Price Overview

• Spot gold fell 0.35% to $3,359.85, down from the opening level of $3,371.92, after reaching an intraday high at the same level of $3,371.92.

• On Friday, gold settled 1.0% higher, hitting a near two-week high at $3,378.90 per ounce, after Powell’s cautious remarks supported rate-cut bets.

• For the week, gold gained around 1.1%, its third weekly advance in a month, amid increased demand for non-yielding assets.

US Dollar

The dollar index rose 0.25% on Monday, recovering from a three-week low of 97.56, reflecting a rebound in the US currency against a basket of global peers.

Beyond technical buying from lower levels, the dollar strengthened at the start of the week as markets awaited new evidence on the likelihood of a September Fed rate cut.

US Interest Rates

• Powell said at Jackson Hole on Friday that shifting risk balances may warrant policy adjustments, with current indicators showing rising downside risks for the labor market.

• Following those remarks, CME’s FedWatch tool showed September rate-cut odds rising to 87% from 75%, while odds of no change fell to 13% from 25%.

• October rate-cut odds climbed to 94% from 85%, while the probability of no change dropped to 6% from 15%.

• Investors will track a series of key US data releases this week, including Friday’s Personal Consumption Expenditures (PCE) report, alongside fresh Fed commentary.

Gold Outlook

• Matt Simpson, senior market analyst at City Index, said gold is well supported near $3,350 in the short term, after Powell’s cautious stance lifted prices on Friday.

• He added that sustained upside likely requires softer PCE inflation and weaker jobs data ahead. However, with inflation risks still elevated, gold’s gains may remain capped after an initial corrective bounce.

SPDR Gold Trust

Holdings in SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Friday, keeping the total at 956.77 metric tons — the lowest level since August 6.

The euro declined in the European market on Monday at the start of the week’s trading against a basket of global currencies, retreating from a three-week high against the US dollar, driven by profit-taking and correction activity.

Reports indicated that the European Central Bank is likely to keep interest rates unchanged next month, but discussions around further monetary easing and potential cuts may resume in the autumn if the eurozone economy weakens.

Price Overview

• EUR/USD fell by 0.2% to 1.1694, down from the opening level of 1.1719, after hitting an intraday high of 1.1726.

• The euro ended Friday’s session up nearly 1.0% against the dollar, marking its biggest daily gain since August 1, and reaching a three-week high at 1.1743, following comments from Jerome Powell at Jackson Hole.

• For the past week, the euro rose by 0.15% against the dollar, posting its third consecutive weekly gain.

US Dollar

The dollar index rose by 0.25% on Monday, beginning to recover from a three-week low of 97.56, reflecting renewed strength in the US currency against a basket of major currencies.

Beyond technical buying from lower levels, the dollar rebounded at the start of the week as markets await further evidence on the likelihood of a Federal Reserve rate cut in September.

According to data from the London Exchange, traders now price an 84% chance of a 25-basis-point rate cut in September, with cumulative cuts amounting to 53 basis points by year-end.

Fed Chair Jerome Powell stated at Jackson Hole on Friday that shifting risk balances may warrant policy adjustments, with current indicators showing rising downside risks to the labor market.

European Interest Rates

• Five sources told Reuters that the European Central Bank is expected to keep rates unchanged next month, though discussions on further cuts could resume in the autumn if eurozone growth weakens.

• ECB President Christine Lagarde said at Jackson Hole on Saturday that the tightening measures adopted in 2022 and 2023 did not trigger a recession or a sharp increase in unemployment, as was historically the case.

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

• Investors will closely monitor upcoming eurozone economic data and remarks from ECB officials in the coming period to reassess these probabilities.

The Japanese yen fell in Asian markets on Monday at the start of the week’s trading against a basket of major and minor currencies, giving up a one-week high against the US dollar, as part of correction and profit-taking moves after a strong daily gain at the end of last week.

Following more hawkish comments by Bank of Japan Governor Kazuo Ueda at the annual Jackson Hole Economic Symposium, expectations rose that the central bank may soon resume policy normalization and raise interest rates after a pause since January.

Price Overview

• Today’s yen exchange rate: the dollar rose against the yen by 0.45% to (147.53¥), from Friday’s close at (146.86¥), with the lowest level during the day’s trading at (146.75¥).

• The yen ended Friday’s session up 1.0% against the dollar, its third daily gain in the past three sessions, and the biggest daily rise since August 1, after Fed Chair Jerome Powell hinted at a US interest rate cut in September.

• The yen posted a 0.2% gain against the dollar last week, its second consecutive weekly rise, driven by expectations of two Fed rate cuts before the end of this year.

US Dollar

The dollar index rose on Monday by 0.25%, recovering from a three-week low of 97.56 points, reflecting a rebound in US currency levels against a basket of global peers.

Beyond low-level buying, the dollar recovered at the start of the week, as markets await fresh evidence on the likelihood of a Fed rate cut in September.

According to London exchange data, traders now price an 84% probability of a 25 basis-point cut in September, with cumulative cuts of 53 basis points by year-end.

Powell said at Jackson Hole on Friday that shifting risk balances may warrant an adjustment in monetary policy, with current indicators showing rising downside risks in the labor market.

Kazuo Ueda

Bank of Japan Governor Kazuo Ueda said at Jackson Hole on Saturday that wage increases are spreading beyond large firms and are likely to continue accelerating due to a tightening labor market.

These remarks reinforced market expectations that the BOJ may resume rate hikes soon after its January move, with traders now seeing a potential increase at the October meeting.

Japanese Interest Rates

• Market pricing of a BOJ 25-basis-point hike in September is currently stable around 45%.

• To reassess these odds, investors are awaiting further data on inflation, unemployment, and wages in Japan.

Outlook for the Yen

• Homin Lee, chief macro strategist at Lombard Odier, expects the yen to strengthen to 140 per US dollar over a 12-month horizon, though he forecasts the policy rate will remain within a limited range in the near term.

• Lee said: “We assume the BOJ’s next rate hike will come in January next year, not October.” He added: “It is likely the bank will keep the real policy rate very low in deeply negative territory until year-end, only considering gradual rate increases thereafter.”