- The US Dollar snapped a three-week negative streak.
- Trump’s attacks on the Fed’s independence remained unabated.
- Markets’ focus now shifts to the upcoming labour market report.
The week the US Dollar tried to bounce
The US Dollar clawed back some ground this week after three straight weekly losses. Still, it’s stuck near the bottom of its yearly range, with the Dollar Index (DXY) holding below 98. On a monthly view, the pullback remains steep, only briefly interrupted by July’s rebound.
Trump vs. the Fed
Trade headlines were quiet, apart from tariff threats on India. Instead, the focus was back on Washington. President Trump tried to oust Federal Reserve (Fed) Governor Lisa Cook, who is now suing to keep her seat, and is pushing to install more dovish allies at the central bank. Short-term yields fell as markets priced in easier policy ahead.
Powell’s position looks safe for now, as his term runs until 2026, but the bigger fight over Fed independence is clearly heating up.
A more political central bank?
Trump’s latest moves have raised fears about a politicised Fed. He fired the Bureau of Labor Statistics commissioner after accusing the agency of “rigging” jobs data, and he continues to clash with Powell. He’s also nominating loyalists like Stephen Miran to key roles, while Christopher Waller has emerged as his preferred candidate to eventually replace Powell. The risk: a central bank more open to delivering the rate cuts Trump wants.
Tariffs: Short-term gain, long-term pain
Tariffs may score political points, but the economic cost could mount. So far, consumers haven’t felt a major hit, but if levies persist, groceries and essentials will get pricier, household budgets will tighten, and growth could suffer. Some in Trump’s team even seem comfortable with a weaker Dollar to boost exports — but reshoring US manufacturing will take years, heavy investment, and more than just tariffs.
Fed holds steady
At its July 30 meeting, the Fed kept rates unchanged at 4.25%–4.50% for the fifth straight time. Powell said the labour market is “effectively at full employment”, but with inflation still sticky — and tariffs muddying the picture — policy needs to stay “modestly restrictive”.
At Jackson Hole on August 22, Powell hinted at the possibility of a September cut if the jobs data deteriorates but emphasised that no decision has been made. Upcoming releases of Nonfarm Payrolls (September 5) and fresh inflation data the following week will be crucial.
Mixed messages from Fed officials
- John Williams (New York) said rates may fall eventually, but the Fed needs more data before moving.
- Tom Barkin (Richmond) expects only a modest adjustment, given steady growth.
- Lorie Logan (Dallas) urged better communication on the policy outlook.
Markets are leaning toward at least one September cut, but officials keep stressing “data dependence”.
With core inflation still around 3% and a tariff shock in train, a September cut risks looking premature unless the next data round weakens decisively. Powell’s messaging leaves space to move if needed, but the bias is to wait for confirmation, not to pre-commit.
Translation: the bar for a September cut is higher than pricing implies
What’s next for the Dollar?
Next week, all eyes will be focused on the US labour market, particularly on Nonfarm Payrolls. The ISM surveys for manufacturing and services will also be closely watched.
Technical picture
The charts don’t look friendly for the Dollar.
If the DXY slips below its multi-year low of 96.37 reached on July 1, the next stops could be 95.13 and 94.62.
On the flip side, the August high at 100.26 is the first big hurdle. A clean break there would open the way to 100.54 and then the May peak at 101.97.
For now, the index is stuck under its 200-day and 200-week SMAs, at 102.62 and 103.17, respectively, keeping the broader bias tilted down.
Momentum signals back that view: the Relative Strength Index (RSI) has cooled to about 45, showing fading bullish energy, while the Average Directional Index (ADX) is sitting near 11, a level that signals the market lacks a strong trend.
DXY daily chart
Bottom line
The US Dollar’s weakness reflects more than market flows. Trump’s tariff threats, clashes with Powell, and swelling federal debt all weigh on sentiment. Even when the currency rallies, gains rarely stick. Against the backdrop of policy uncertainty and political pressure on the Fed, most strategists still see more downside than upside for the buck.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
