The US Dollar Index (DXY), which measures the dollar’s performance against six major currencies, has edged down to approximately 103.20. This decline is being influenced by falling US Treasury yields, which currently stand at 4.01% and 3.97%, respectively.
The dollar is facing headwinds amid rising speculation that the Federal Reserve may implement a rate cut in September. Traders are assessing mixed signals from the US economy to gauge whether it will achieve a soft landing or slide into a recession. The CME FedWatch tool reveals that markets are fully pricing in a 25-basis point rate cut by the Fed next month.
Kansas City Fed President Jeffrey Schmid commented on Thursday that a reduction in monetary policy might be “appropriate” if inflation remains subdued. He indicated that the current Fed policy is “not that restrictive” and although the Fed is approaching its 2% inflation target, it has not yet reached it, according to Reuters.
On the economic front, US Initial Jobless Claims fell to 233,000 for the week ending August 2, surpassing the market expectation of 240,000. This decrease follows a revised figure of 250,000 from the previous week, which was the highest in a year.
Despite these challenges, the dollar’s downside may be mitigated by increased safe-haven demand due to escalating geopolitical tensions in the Middle East. Israeli airstrikes on the Gaza Strip have resulted in at least 40 casualties, as reported by Palestinian medics. The intensification of conflict between Israel and Hamas-led militants, coupled with the potential for a broader regional conflict, adds pressure to the Greenback.
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