The U.S. dollar started the week broadly steady after a volatile stretch that saw the greenback hit multi-year lows before rebounding on the Federal Reserve’s decision to lower interest rates for the first time since December.
The dollar index (DXY) opened at 97.657, little changed after finishing last week 0.03% higher.
The rebound that began after Wednesday’s Fed meeting carried through to Friday, with the central bank lowering its benchmark rate by 25 basis points to a range of 4.00% to 4.25%.
More than the rate cut itself, markets are now focused on what lies ahead as Fed officials begin a busy schedule of public remarks.
The “blackout” period before the September policy meeting ended on Thursday, opening the door to a new phase of monetary communication.
Over a dozen speeches are expected this week, including three appearances from Governor Michelle Bowman, comments from Raphael Bostic, Lorie Logan and Austan Goolsbee, and above all, Chair Jerome Powell, whose remarks on Tuesday (Wednesday AEST) will be closely scrutinised.
The Fed’s latest projections underscored divisions within the committee. Nine policymakers see two more cuts this year, six prefer holding steady, while new Governor Stephen Miran - who dissented - argued for a steeper easing path, signalling as much as 125 basis points of cuts in 2025.
Adding to the debate, Fed Governor Stephen Miran, who dissented at last week’s meeting, said he was the “bottom dot” in the Fed’s projections, advocating for deeper cuts and warning that prolonged restrictive policy could damage the labour market.
Markets are now watching whether Powell signals a clear bias for additional easing at the October and December meetings, with CME Group FedWatch Tool still pricing in two more cuts before year-end.
Euro starts flat
The euro began the week flat after a muted 0.1% gain last week, briefly touching four-year highs before slipping lower against the recovering dollar.
EUR/USD edged down late Friday as the rebound in U.S. Treasury yields lifted the greenback.
Political headwinds also weighed on the euro, as large-scale protests erupted in France against spending cuts proposed by former Prime Minister François Bayrou.
The demonstrations pose fresh challenges for President Emmanuel Macron and his new Prime Minister, Sebastien Lecomu, pressuring sentiment toward the shared currency.
Aussie struggles with weaker employment
The Australian dollar opened the week with a modest 0.1% rise to 0.65926, though AUD/USD posted its first weekly decline in four weeks, falling 0.9%.
The Aussie has been pressured by the post-Fed dollar rebound and soft domestic jobs data.
Figures last Thursday showed employment dropped by 5.4K in August against expectations for a 22K increase.
Full-time jobs fell sharply by 40.9K, offset by a 35.5K rise in part-time positions. The participation rate slipped to 66.8%, while unemployment held at 4.2%.
Sterling supported by retail sales
Sterling edged 0.1% higher at 1.34698 to start the week, retracing some of last week’s 0.7% loss.
UK retail sales provided some support, rising 0.5% month-on-month in August and beating forecasts.
However, fiscal worries capped upside momentum, with investors focusing instead on the U.S. dollar’s renewed strength.
Next week brings a heavy UK data slate, including flash PMIs and comments from Bank of England officials, which could guide sentiment toward Cable.
Yen steadies as BoJ holds policy
The yen traded at 147.96 at the week’s start after a 0.2% gain last week, with USD/JPY supported by dollar strength.
The Bank of Japan kept rates steady at 0.5% as expected but maintained a hawkish tilt.
Governor Kazuo Ueda reiterated that the BoJ will raise rates if economic and price conditions warrant, while two board members dissented in favour of a 25-basis-point hike to 0.75%.
Strategists at Scotia Bank said: “The yen is outperforming on the back of a hawkish hold from the BoJ… Ueda’s tone was neutral, opening the door to a potential October hike while making no commitment in terms of the near-term rate path.
"The USD’s latest gains appear fundamentally driven as interest rate differentials shift following the Fed’s ‘risk management’ cut.”
Economic events in the Week Ahead
Monday will see China’s loan prime rate and Canada’s PPI data, along with U.S. releases including the Chicago Fed national activity index and speeches from Fed officials John Williams and Adriana Kugler.
On Tuesday, attention turns to the eurozone’s flash consumer confidence report, the UK’s flash PMIs, and a key appearance from Fed Chair Jerome Powell. Australia will also publish flash PMIs, while South Korea reports PPI figures.
Wednesday brings Powell’s testimony, South Korean consumer confidence, Japan’s PMI flash, and Australia’s monthly CPI indicator.
On Thursday, U.S. data will include durable goods orders, final GDP, and new home sales, with speeches from Fed officials Mary Daly and Austan Goolsbee. Japan will release BoJ meeting minutes, while the UK reports distributive trades.
Friday closes the week with the U.S. PCE price index, personal income and spending data, and consumer sentiment. Europe will watch for inflation expectations, with ECB President Christine Lagarde due to speak, while Japan publishes Tokyo CPI. Canada will release monthly GDP figures, providing further insight into North American growth trends.
