The United States dollar index began the week little changed after booking a second consecutive week of gains.
The U.S. dollar index (DXY) opened little changed at 98.182, following gains of 0.6% last week, with traders now turning their attention to September’s nonfarm payrolls (NFP) report for the next catalyst.
The Greenback’s momentum was reinforced by stronger-than-expected U.S. fundamentals, with revised second-quarter gross domestic product (GDP) data coming in higher than expected, while labour market indicators pointed to resilience, helping the DXY break through the 98.00 mark and briefly touch monthly highs near 98.60.
U.S. Treasury yields mirrored the move, adding to the bullish tone.
The Federal Reserve recently delivered a 25 basis-point rate cut, citing cooling job growth and mounting employment risks.
Projections suggest another half-point of easing is likely before year-end, while the 2026–2027 path shows smaller cuts ahead.
Chair Jerome Powell highlighted slowing hiring, cautious consumer spending, and core inflation at 2.9%, adding that risks appear more balanced and the Fed is nearing a neutral stance.
Markets are pricing in two more cuts - October and December - totalling nearly 40 basis points by year-end.
Euro: Rebound on Fed Easing Bets
The euro steadied at 1.1699 on Monday after slipping 0.4% last week. The EUR/USD currency pair ended Friday on firmer ground as the Fed’s preferred inflation gauge, the core personal consumption expenditures (PCE) Index, remained below 3%, boosting expectations for further U.S. rate cuts.
Fed officials struck a dovish tone. Governor Michelle Bowman said the labour market remains fragile, while Richmond Fed’s Thomas Barkin warned that both inflation and unemployment trends are concerning.
Across Europe, a thin economic calendar left traders focused on geopolitics as NATO signalled readiness to intercept Russian aircraft after recent tensions in the Baltics.
This week, euro traders will eye Eurozone business and consumer sentiment, inflation prints, and ECB commentary, alongside US data including ADP employment, ISM PMIs, and NFP.
Aussie: Focus Turns to RBA
The Australian Dollar edged higher to 0.6547 after a 0.7% drop last week. The rebound followed U.S. PCE data broadly matching forecasts, which eased dollar demand. Softer U.S. consumer sentiment also lent support to the Aussie.
Markets now turn to Tuesday’s Reserve Bank of Australia (RBA) meeting. Economists widely expect the cash rate to remain unchanged at 3.60%, with investors waiting for Q3 CPI data in October for policy guidance.
Major banks remain divided: ANZ, CBA and Westpac foresee a cut before year-end, while NAB expects the first reduction in May 2026.
Cable: Sterling Finds a Floor
The pound opened at 1.3399 after falling 0.5% last week. GBP/USD clawed back losses on Friday, lifted by the in-line US PCE report. Sterling had dropped to seven-week lows before stabilising.
Data showed U.S. core PCE rose 0.2% in August, with annualised inflation at 2.9%, while headline inflation climbed to 2.7%.
Personal income and spending both grew, underscoring resilient U.S. demand. Richmond Fed’s Barkin suggested policy may need to lean more toward employment after the recent rate cut.
For UK traders, upcoming GDP revisions, current account data, and housing indicators will be key.
Yen: Dollar Pauses at Highs
The yen started the week near 149.50 per dollar after USD/JPY gained 1% last week and touched eight-week highs.
The pair cooled on Friday as traders digested in-line U.S. PCE data and renewed trade tensions after President Donald Trump announced steep new tariffs on a range of imports, including pharmaceuticals, trucks, and furniture.
In Japan, Tokyo CPI data showed inflation steady at 2.5% YoY in September, below expectations. The softer reading added pressure on the yen, though risk aversion linked to U.S. tariffs tempered further dollar strength.
Economic Calendar Week Ahead
The coming week is packed with key releases and central bank events. On Monday, the eurozone posts sentiment data, the UK releases consumer credit and lending figures, while several Fed officials, including Williams and Bostic, are due to speak.
Tuesday sees the RBA’s rate decision and press conference, alongside China’s PMI readings, U.S. pending home sales, and consumer confidence.
On Wednesday, focus turns to the U.S. ADP report and ISM manufacturing PMI, while Japan’s Tankan survey and eurozone inflation data will provide fresh direction.
Thursday brings Australia’s trade balance and the RBA’s financial stability review, while Europe reports unemployment figures.
The week concludes on Friday with the all-important U.S. nonfarm payrolls, average hourly earnings, and ISM services PMI, alongside Japanese unemployment and eurozone producer prices.
