Dollar declines on firm Fed rate cut in September

The EURUSD pair rebound to near the psychological resistance of 1.1000 in Friday’s New York session. The major currency pair bounced back as the US Dollar declined with investors gaining confidence that the Federal Reserve will start reducing interest rates from the September meeting.

The DXY Dollar Index, which tracks the greenback’s value against six major currencies, declined to near 102.70. Firm speculation for Fed interest-rate cuts in September has improved appeal for risk-sensitive currencies, while 10-year US Treasury yields tumbled to near 3.89%.

Market participants remain confident over Fed rate cuts in September. Traders pare bets supporting a 50-basis point interest-rate reduction as fears of the US entering a recession have waned after robust growth in Retail Sales in July and lower-than-expected Initial Jobless Claims for the week ending August 9.

The next trigger for the US Dollar will be Fed Chair Jerome Powell’s speech at the upcoming Jackson Hole symposium, which will be held from August 22-24, where he is expected to provide cues for interest rate-cut path for the entire year.

Meanwhile, the appeal of the Euro remains firm as investors expect that the European Central Bank will reduce interest rates gradually. ECB policymakers have been refraining from committing a specific rate-cut path as they worry that price pressures could reaccelerate.

(Source: OANDA)