The dollar has had a torrid August so far and it looks to be continuing now after another key data release yesterday. The US labour market report kicked things off at the start of the month and the US CPI report is adding to the downside for the currency, after having shown that we’re yet to see a meaningful acceleration in tariffs inflation in July.
EUR/USD is now up 0.3% on the day and nudging above 1.1700 after having seen gains limited by the figure level yesterday. The pair now trades to the highest level in over two weeks, though there are large option expiries at the 1.1700 mark to be wary of today.
EUR/USD hourly chart
Besides that, USD/JPY is also sliding back to 147.60 after having pushed back up to 148.00 earlier in the day. Meanwhile, GBP/USD is up 0.3% to 1.3535 near three-week highs while AUD/USD is also breaching minor resistance at 0.6540 to climb up to 0.6550 at the moment. The latter is up 0.4% on the day and also pushing to near three-week highs.
The inflation data yesterday reaffirms the potential for the Fed to lean more dovishly in September, which is what markets are banking on at the moment. That especially as the politicisation of the Fed begins to grow louder as Trump keeps up the pressure on the central bank to cut interest rates.
The only sort of stopgap for the dollar is that traders have already fully priced in a move in September. By year-end, traders are seeing ~60 bps of rate cuts too at the moment. So unless we see markets be more convinced of consecutive rate cuts in September, October, and December, then we are hitting a bit of a cap in terms of the more dovish Fed outlook.
But from a technical perspective, the dollar remains vulnerable as the downside momentum this month continues to stay the course. EUR/USD will be looking back towards the 1.1800 mark while GBP/USD looks poised to revisit the 23-24 July highs just under 1.3600. However, any further pushes beyond that might need dollar sentiment to worsen much more than what we’re seeing.
