Investing.com – The U.S. dollar fell on Monday ahead of the release of minutes from the Federal Reserve’s July policy meeting and Fed Chairman Jerome Powell’s upcoming speech in Jackson Hole later this week.
At 05:40 ET (09:40 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.3% at 101.977, near its lowest level in seven months.
The dollar’s bearish momentum is starting to build.
Inflation data due on Wednesday and Powell’s meeting on Friday are likely to be the main drivers of the currency’s movement during the week, with traders expecting a dovish tone.
“The signs are subtle, but bearish momentum for the dollar is starting to build,” analysts at ING Bank said in a note. “The dollar index is now falling to lows seen in early August. Events this week such as the July FOMC minutes, the payrolls review and Fed speakers could add to the dollar’s losses. Investors may want to see how far they can take the dollar into September.”
The Federal Reserve has kept its benchmark overnight interest rate in the current range of 5.25% – 5.50% since last July, after raising the interest rate by 525 basis points since 2022.
Traders have fully priced in a 25 basis point rate cut by the Fed in September, with a 24.5% chance of a 50 basis point cut.
Sterling rises to highest level in a month
In Europe, the pound rose 0.2% to 1.2963, climbing to a one-month high as the pound benefited from a weaker dollar.
“The GBP/USD pair looks set to retest its year-high of 1.3045 as dollar weakness dominates global FX markets,” said analysts at ING. “We thought that dovish Bank of England policy would keep sterling’s gains in check. In this regard, Bank of England Governor Andrew Bailey speaks at the Fed’s Jackson Hole symposium on Friday.”
“But what we may underestimate is the demand for sterling through M&A activity. This year the UK is the target region for deals worth over $200bn.”
The pound rose 0.1% against the US dollar to 1.1037, approaching its highest level in more than seven months hit last week.
“If EUR/USD starts trading through 1.11, we would not underestimate its potential to follow through as realized volatility has been very low for a long time,” ING added.
yen rise
In Asia, the dollar fell 1% to 146.05, with the big move lower being a result of the dollar’s overall weakness, along with the possibility of further political divergence between the US and Japan.
Bank of Japan Governor Kazuo Ueda is due to appear before parliament on Friday, where he is expected to discuss the central bank’s decision last month to raise interest rates.
The Chinese yuan fell 0.3% to 7.1408, with the yuan set to achieve its biggest gain in two weeks, benefiting from a broad-based selling of the dollar as investors bet on a cut in U.S. interest rates.