The United States dollar index (DXY) broke a three-week losing streak last week, starting little changed at 97.84 and remaining pinned near the bottom of its yearly range, weighed down by political pressure on the Federal Reserve and renewed inflation concerns.
Political developments dominated currency markets. President Donald Trump intensified his campaign to reshape the Federal Reserve, moving to oust Governor Lisa Cook, who has since filed a lawsuit to keep her post.
Trump also recently dismissed the commissioner of the Bureau of Labor Statistics, alleging jobs data had been “rigged”, and continues to pressure Fed Chair Jerome Powell over interest rates.
The President is pushing for loyalists such as Stephen Miran, while floating Christopher Waller as a potential Powell replacement when the chair’s term expires in 2026.
Markets fear this signals a shift toward a more politicised central bank, one more willing to deliver rate cuts ahead of November’s election.
According to the CME Group FedWatch Tool, markets assign an 87.4% probability of a 25-basis-point cut in September, though Fed officials have stressed the need for more data before committing.
New York Fed President John Williams suggested rates may fall eventually, but Richmond’s Tom Barkin emphasised only modest adjustments given steady growth. Dallas Fed President Lorie Logan urged clearer communication on policy, reflecting mixed views within the central bank.
Euro holds firm
The euro ended August near the top of its monthly range, with the EUR/USD currency pair stabilising around 1.1700 after recovering early-week losses, and starting the new week around 1.1688. Political pressure on the Fed and dovish remarks from Williams helped offset concerns over renewed tariff threats from Washington.
However, European political risk capped upside momentum. In France, Prime Minister François Bayrou called for a parliamentary confidence vote on 8 September amid divisions over austerity measures. Meanwhile, Russia’s continued strikes in Ukraine drew condemnation from EU officials, adding a geopolitical risk premium.
On the economic front, German data was mixed, with the IFO business climate index improving but consumer confidence slipping.
The ECB’s latest meeting accounts signalled comfort with current policy settings but highlighted persistent uncertainty.
The coming week brings Eurozone inflation, retail sales, and a GDP revision, alongside several speeches from ECB President Christine Lagarde. These will test the euro’s resilience against a politically vulnerable dollar.
Aussie extends rally
The Australian Dollar rose for a fourth straight session on Friday, with AUD/USD climbing into the 0.6550 region and lifting around 0.7% for the week before ticking up a further 0.1% to start Monday's trade.
The pair is now testing the upper end of its 2025 trading range.
Despite hotter U.S. inflation — with core PCE rising 2.9% year-on-year, its highest since February — markets continue to price nearly 90% odds of a September Fed rate cut. This expectation has fuelled steady demand for higher-yielding currencies like the Aussie.
Australia’s upcoming gross domestic product (GDP) growth report, trade balance, and company profit data will provide fresh direction, while broader risk sentiment tied to China remains a swing factor for AUD/USD.
Sterling consolidates
The British Pound snapped a three-day winning streak against the dollar to decline 0.1% for the week after the latest PCE inflation data.
GBP/USD remains supported by resilient consumer spending, with personal outlays rising 0.5% in July, above forecasts.
Even so, the dollar’s firmer tone kept sterling in check. Markets largely viewed the inflation outcome as priced in, leaving GBP/USD consolidating into the new month.
The focus now turns to UK housing data and the S&P Global construction PMI, which will feed into expectations for the Bank of England’s next moves.
Yen steady on inflation data
The Japanese Yen edged lower as Tokyo’s August CPI report showed inflation easing slightly. Core CPI rose 2.5% year-on-year, down from 2.9% in July, matching forecasts. Excluding fresh food and energy, inflation held at 3.0%.
The moderation tempered bets on further Bank of Japan tightening, though wage and household spending figures due later this week will be critical in shaping expectations.
USD/JPY continues to trade with sensitivity to U.S. Treasury yields, with the pair holding firm despite the dollar’s broader volatility.
Economic Calendar Week Ahead
On Monday, Japan will release its capital spending figures, while South Korea publishes its balance of trade.
Final S&P Global manufacturing PMIs are due for Australia, South Korea, the UK, and China.
Australia will also issue building permits, business inventories, and quarterly company gross profits.
In the UK, data on nationwide housing prices, Bank of England consumer credit, mortgage approvals, and lending are expected, while the Eurozone reports its unemployment rate.
On Tuesday, attention turns to Europe where ECB President Christine Lagarde is scheduled to speak, alongside the release of the region’s inflation rate.
New Zealand will publish quarterly import and export prices and terms of trade, while South Korea issues its inflation rate.
Australia will release its current account data, and the U.S. will publish the ISM manufacturing PMI. Final S&P Global manufacturing PMIs are also due from Singapore, Canada, and the U.S.
On Wednesday, South Korea will release its final GDP growth figures, while Australia publishes its own GDP growth rate.
The Eurozone will issue producer price index (PPI) data, and final S&P Global services and composite PMIs will be released for Australia, Japan, Singapore, China, the Eurozone, and the UK.
On Thursday, the U.S. will release JOLTS job openings, the Federal Reserve’s Beige Book, and remarks from Fed official Neel Kashkari.
South Korea will publish its current account figures, while Australia issues balance of trade and household spending data. In the UK, the S&P Global construction PMI is due, while the Eurozone publishes retail sales.
The U.S. will also release ADP employment change, balance of trade, and initial jobless claims, while Canada reports its own trade balance.
Additionally, final S&P Global services and composite PMIs will be released for Canada and the US.
On Friday, the focus will be on the U.S., with the ISM services PMI, speeches from Fed officials John Williams and Austan Goolsbee, as well as average hourly earnings, nonfarm payrolls, and the unemployment rate.
Japan will issue data on average cash earnings and household spending, while Singapore reports retail sales.
In the UK, the Halifax house price index and retail sales figures are expected.
The Eurozone will release its third estimate of GDP growth, and Canada will publish its employment change data.
