The dollar continues to weaken, and the market focuses on key U.S. data

On the Asian session on Tuesday, the US dollar index fluctuated slightly, the US dollar hit a five-week low on Monday, and investors awaited a series of U.S. job market data this week, which could affect expectations for the Federal Reserve's monetary policy path. Traders are also evaluating U.S. inflation data and court rulings that most of Trump’s tariffs are illegal, and his wrestling with the Fed over his attempt to fire Fed Director Cook.

Analysis of major currencies

U.S. USD: As of press time, the US dollar index hovered around 97.73. Currently, the market expects that the probability of the Federal Reserve cutting interest rates by 25 basis points this month is 90%, and the cumulative interest rate cut by 2026 will reach 100 basis points. The downside risks faced by the US dollar continue to become the focus of the market. This week's economic calendar contains a number of important data, including Job Vacancy and Labor Movement Survey (JOLTS), Automated Data Processing llfzg.cnpany (ADP) private sector employment data, and the highly-watched non-farm employment report on Friday. Analysts believe that if the labor market continues to be weak, it will support the Fed's dovish stance. Societe Generale's Klaus Bard said that if the recent economic weakness is proven to be the real situation, the Federal Reserve may take more radical policy responses. From a technical perspective, the US dollar index is currently below the 50-day moving average (98.000) and the 200-day moving average (102.578), which strengthens the bearish pattern. The resistance level in the 98.317-98.834 range is solid, while the support level of 97.556 is being tested. If the bear momentum increases, the US dollar index will clearly fall below this support level, and the next step may fall to 97.109, or even further fall to 96..377.

Euro: As of press time, the euro/dollar hovered around 1.1706. On Monday, the euro/dollar rose by more than 0.20%, and during the trading session with thin liquidity, the U.S. financial markets were closed due to the Labor Day holiday. The soft dollar and growing bets on the Fed's interest rate cut at its September meeting boosted the euro's appeal. Judging from the daily chart, the middle rail of the Bollinger band is 1.1625, the upper rail is 1.1782, the lower rail is 1.1467, and the bandwidth is about 0.0315. The overall trend is flat, indicating that the medium-term volatility converges. The exchange rate is currently running above the middle track and close to the upper half, and maintains a "slow upward + high-level consolidation" structure in the short term. The front height marked on the figure is 1.1829, and the primary static resistance above the current upper is the resonance range between 1.1782 and the front height; if the volume cannot be effectively broken through, it is easy to repeat near the upper rail. The dynamic support below focuses on the middle track 1.1625 first, followed by 1.1467 (Ballinger's lower track) and the previous key low of 1.1391.

GBP: As of press time, GBP/USD hovered around 1.3536. On Monday, GBP quickly repaired its retracement last Friday, GBP/USD returned above 1.3500, and the North American period was approaching 1.3550; against the backdrop of the total pressure on the US dollar, the exchange rate refocused the possibility of a breakthrough in the 1.3600 line. In response, the US dollar index (DXY) continued to fall below 98.00 and approached the late July low, with risk appetite slightly rebounding, and the pound received momentum support. This week, the U.S. is data-intensive and the labor market will be the focus. The employment and wage sub-items within the week are regarded by the market as the key to testing inflation stickiness, while the expectation of "two rate cuts this year" is still slowly heating up in pricing, with interest rates falling at the front end of the curve, and the US dollar as a denominated asset passively weakening. In this external environment, the beta coefficient of the pound is amplified: every time the US dollar downward pulse, the pound is more elastic to its reverse direction. The daily chart shows that the middle rail of the Bollinger band is 1.3430, the upper rail is 1.3639, and the lower rail is 1.3222; the latest price is around 1.3540, running above the middle rail and approaching the upper rail. After falling back from the high point of 1.3788, the Bollinger bandwidth converged significantly llfzg.cnpared with the previous one, reflecting the contraction of volatility and the strengthening of sideways trend; the center of gravity of the intraband oscillation moved from 1.34 to above 1.35, and short-term bulls dominated but lacked unilateral diffusion.

Summary of news from the foreign exchange market

1. Becent: Several candidates for the Federal Reserve Chairman are also expected to be directors

U.S. Treasury Secretary Scott Becent ZhouA pair of Semafor said that the "several" candidates for the Federal Reserve Chairman are also candidates to fill two vacant seats in the central bank's board of directors. When asked about the market’s reaction to President Trump’s attempt to remove Fed Director Cook, Becent said both the bond and foreign exchange markets remained “calm.” Becent said he and Trump had “discussed in detail what kind of people the candidate should be and their qualifications,” and Becent also said Trump “has great respect” for the Fed.

2. Trump says India has proposed to lower tariffs on the US to zero, but it is too late. US President Trump said that India has proposed to cut tariff rates after the United States imposed a 50% tariff on it last week for India to buy Russian oil. "They have now proposed to lower the tariffs to zero, but it's too late. They should have done that a few years ago," Trump said on social platform TruthSocial on Monday. It is not clear when India proposed it, nor is it clear whether the White House plans to restart trade talks with India.

3. UBS: The ECB's interest rate cut cycle may have ended

UBS analysts said that the ECB's interest rate cut cycle may have ended and are expected to keep the deposit rate unchanged at 2% at the September policy meeting. Although we expect the eurozone economy to stagnate in the second half of 2025 due to U.S. tariffs and inflation levels will remain flat or below the 2% target in the llfzg.cning quarters, the ECB is not expected to cut further interest rates. This judgment is mainly based on the fact that the EU is launching large-scale fiscal stimulus: on the one hand, the EU strengthens defense spending; on the other hand, Germany increases infrastructure investment. Analysts believe that these measures will gradually show results from the beginning of 2026 to provide support for the economy.

4. The euro zone manufacturing recovery is expanding and the situation is improving. Cyrus dela Rubia, chief economist at Hamburg llfzg.cnmercial Bank, said that the economic recovery in manufacturing is expanding. Among the eight monitored countries, the situation is improving, llfzg.cnpared with only four last month. Therefore, the eurozone manufacturing PMI has broken through the expansion threshold for the first time since mid-2022, mainly because llfzg.cnpanies are speeding up their speed of increasing production. New orders also bring hope for a sustainable recovery. After more than three years of continuous decline, llfzg.cnpanies are now seeing a slight increase. The increase in domestic orders offset the weakening of foreign demand. In fact, the best remedy to llfzg.cnbat U.S. tariffs may be to strengthen domestic demand, including internal EU markets. But while the recovery is real, it is still fragile. The continued decline in inventory levels and a slightly accelerated decline in backlogs suggest that llfzg.cnpanies are still facing uncertainty. This is not surprising given the U.S. tariff policy and geopolitical tensions.

5. German manufacturing industry has shown encouraging signs, but it has not yet escaped.

Cyrus dela Rubia, chief economist at Hamburg llfzg.cnmercial Bank, saidThese are encouraging developments for German manufacturing. Output has grown for six consecutive months, and llfzg.cnpanies have received more new orders for three consecutive months. But that doesn't mean that German industry is out of trouble - far from that. However, production can still be expanded in the face of increasingly severe challenges, which proves its resilience. Currently, German manufacturers are fighting on multiple fronts. Ex-factory prices are still under pressure, and the backlog of orders continues to shrink. After the recovery in previous months, overseas llfzg.cnmodity demand fell again in August. In response to this, the layoffs of enterprises further expanded llfzg.cnpared with last month. But it is gratifying that as output continues to grow steadily, labor productivity is increasing. Overall, we are seeing an upward trend in output, which should be supported by expansionary fiscal policies, including increased investment in infrastructure and defense.

Institutional View

1. Institutional: The possibility of non-agricultural data being hot this week is greater

MonexEurope analysts said in a report that if the non-agricultural data released on Friday is better than expected, the US dollar may gain some support as a result. "We believe that August data will show that the labor market is still relatively stable and the data is more likely to be hot." This may bring the market's focus back to inflation risks, as August inflation data will be released before the Fed's September meeting. If the Fed pays more attention to inflation risks, it may not even be able to implement interest rate cuts throughout the year. This situation will prompt the market to raise interest rate expectations and drive the dollar to strengthen.

2. Frankfurt: The pound faces a llfzg.cnbination of inflation and economic growth

Soviet Macro strategist Kit Jux said that as the UK faces an unfavorable situation of high inflation and low growth, which brings policy challenges to the Bank of England, the pound may face further downward pressure. Inflationary pressure from rising wages has supported consumer demand, but economic output remains weak. At the same time, the UK's financial situation is also very serious. The "only positive" of the pound is that it has fallen sharply, and a large number of traders in the market have been betting on it by shorting the pound. But he warned: "This situation may not provide protection for the pound for too long."

3. HSBC: ECB is expected to keep interest rates unchanged in September

Fabio Balboni and Simon Wells, senior economists at HSBC, said the ECB is expected to keep interest rates unchanged at next week's meeting and remain cautious about possible rate cuts in the future. Both the PMI in August and the second quarter's 0.1% month-on-month growth was slightly better than market expectations, and the inflation rate in July was also slightly higher than expected. But on the other hand, June trade data showed a sharp decline in exports and the French government faced the risk of collapse, which exacerbated political uncertainty. Some inflation-suppressing factors have emerged since June, including a strengthening euro and the U.S. tariffs on the EU are slightly higher than the ECB's benchmark expectations. European Central Bank staff are expected to have only a slight adjustment in their forecasts for the economic outlook.

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