Dollar Steadies Near Multi-Week Lows as Fed Rate Cut Bets Intensify
- admin cys
- Aug 21
- 3 min read
A Report by CYS Global Remit Counterparty Sales & Alliance Unit
Market Cautious Ahead of Key U.S. Data
The U.S. dollar held near multi-week lows on Thursday, as traders awaited fresh economic data expected to reinforce the case for a Federal Reserve interest rate cut next month. At 04:05 ET (08:05 GMT), the Dollar Index, which measures the greenback against a basket of six major peers, edged 0.1% higher to 97.709—just above Wednesday’s two-week low.
The currency has been on the defensive for most of August, weighed down by weaker-than-expected jobs data earlier in the month. This downtrend gained momentum after July consumer price data showed benign inflationary pressures, suggesting that U.S. tariffs imposed under President Donald Trump have yet to meaningfully feed into consumer prices. This environment has allowed the Fed to shift its attention toward signs of a cooling labour market without immediate concern over inflation.
Markets are now pricing in a 99% probability of a 25-basis-point cut at the September Federal Open Market Committee (FOMC) meeting, according to Investing.com’s Fed Rate Monitor Tool. U.S. Treasury Secretary Scott Bessent has fuelled speculation of a deeper 50-bps move, citing recent soft employment numbers. However, ING analysts note that such a cut would require stronger signals—either from the upcoming Jackson Hole symposium or another sharply disappointing jobs report in August—before markets would take the possibility seriously.
Fed Chair Jerome Powell is due to speak at the annual Wyoming symposium next week, an event he used last year to signal an upcoming easing cycle. In the meantime, investors are focused on the July Producer Price Index for signs of tariff-driven cost pressures and the latest weekly jobless claims to gauge labour market strength.
Historical Parallels and Downside Risks for the Dollar
In a note released Wednesday, Bank of America (BofA) cautioned that the dollar could face further weakness if the Fed begins cutting rates in 2025 while inflation is still rising. Such a combination is rare, last occurring between the second half of 2007 and the first half of 2008, when falling real policy rates contributed to a sustained dollar decline.
BofA’s historical analysis reveals that the current year-to-date dollar selloff most closely resembles 2007 patterns, with the highest correlation since 1973. Notably, dollar depreciation in past cycles tended to accelerate in the run-up to rate cuts, with selling pressure persisting for up to three months after the first move.
The July non-farm payrolls report has already revived a broad dollar downtrend. Trend and value indicators from BofA’s quantitative framework show consistent bullish signals for the New Zealand dollar (NZD) against the U.S. dollar, placing NZD/USD as a standout performer among G10 currencies. Nonetheless, BofA warns that dovish guidance from the Reserve Bank of New Zealand at its upcoming policy meeting could temper gains against other major currencies.
Outlook
The dollar’s near-term trajectory will hinge on incoming economic data, particularly inflation and labour market indicators. While the consensus points toward a modest 25-bps Fed cut in September, any unexpected weakness in employment or a shift in tone from Powell at Jackson Hole could open the door for a more aggressive policy move.
For now, historical parallels with the 2007–2008 period and persistent bearish market sentiment suggest the greenback’s struggles may extend into the coming months, with commodity-linked currencies such as the NZD potentially benefiting most from the dollar’s weakness—provided domestic monetary policy does not offset these gains.
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