By Konstantinos Chrysikos, Head of Customer Relationship Management, Kudotrade
The US dollar remained firm on Friday, consolidating the gains made on Thursday, after cautious remarks from Fed officials combined with stronger-than-expected PMI data lifted the currency. Despite this resilience, weekly jobless claims disappointed, pointing to signs of cooling in the labor market.
Markets are now recalibrating expectations for monetary easing, with futures assigning a 73% chance of a 25bp cut in September. Forecasts continue to indicate two potential rate cuts by year-end. Policymakers have highlighted tariff-related price risks, with Kansas City Fed President Jeffrey Schmid pointing out that inflation remained elevated and Cleveland’s Beth Hammack not seeing a case for reducing interest rates immediately.
Treasury yields reflected the wait-and-see stance. The 10-year note held just above 4.32%, broadly unchanged on the day but near its recent highs, suggesting investors are reluctant to adjust positioning before Powell clarifies whether the Fed intends to validate current market pricing or push back against easing bets. A cautious tone could temper expectations for aggressive rate cuts and lend support to both the dollar and yields, while dovish signals may revive bets on faster policy easing and weigh on the greenback.
On the data front, PMI surveys reinforced the bullish sentiment. August’s composite index reached 55.4, its highest this year, with manufacturing rebounding strongly to 53.3, the best reading since May 2022, while services activity held comfortably in expansionary territory. Rising input costs and higher output charges underscored lingering inflationary pressures, even as employment growth accelerated in manufacturing.