The U.S. dollar index rose on Monday, nearing the 98 level, recovering part of the losses it suffered in the previous session. This move comes as investors continue to assess the Federal Reserve’s monetary policy path following comments from Chairman Jerome Powell at the Jackson Hole conference.
Impact of Powell’s speech
On Friday, the dollar fell by about 1% after Powell signaled that interest rate cuts are now on the table. He stressed that the labor market remains strong with low unemployment rates, but rising risks may require adjustments to monetary policy. Powell also pointed out that changes in tax, trade, and immigration policies are reshaping the U.S. economic landscape.
Investor expectations for rate cuts increased, with markets now pricing in an 87% probability of a 25-basis-point cut in the September meeting, compared to around 75% last week. This reflects growing confidence among traders that the Fed will move toward easing policy to support the economy.
Focus shifts to inflation data
Attention is now turning to July’s Personal Consumption Expenditures (PCE) price index, the Fed’s preferred measure of inflation. The release of this data on Friday will provide clearer signals on whether the central bank will proceed with a rate cut or maintain a cautious stance.
The dollar’s rebound shows that markets remain volatile, swinging between Fed statements and economic expectations. With September’s meeting approaching, economic data—especially inflation—will be the decisive factor in shaping the next direction for the dollar and U.S. interest rates.
