Losses for the Greenback Ahead of an Expected Rate Cut in September

28 August’s second estimate for Q2’s GDP growth in the USA was positive, up 0.3% from the 3% of the first estimate, but other factors like monetary policy and trade seem to be weighing on the dollar. This article summarises recent news affecting the greenback then looks briefly at the charts of EURUSD and USDJPY.

The second estimate for Q2’s GDP beat expectations at 3.3% and showed a significant turnaround from the first quarter’s contraction:

Exports and obviously imports were lower than in the first quarter, but the influence of trade wars doesn’t appear to be the only driver of last quarter’s growth, given that consumer spending also rose significantly faster than in Q1. Looking only at GDP data, there doesn’t seem to be any sign yet of a consistent slowdown or upcoming recession.

However, the job market in the USA does definitely seem to be slowing down. August’s NFP with data for July was much lower than expected at 73,000 and the figures for May and June were revised very sharply downward, both below 20,000. This has raised questions about the reliability of the numbers from the NFP and the appropriateness of the American government’s response of sacking the head of the BLS.

Political pressure on the Fed to cut rates in September remains, but it’s questionable whether there might’ve been a cut then anyway, even without comments from senior figures in the government. Annual headline inflation in July unexpectedly held at 2.7%; the consensus had been a rise to 2.8%. The probability of a single cut on 17 September is around 85% according to CME FedWatch: the likelihood of at least two cuts by the end of the year is around the same.

Although trade wars have generally moved out of the headlines over the summer, various issues with trade deals still need to be agreed, perhaps most importantly for now the deals between the USA and the EU and Japan. ‘De minimis’ exceptions for imports into the USA below certain values ended in late August, mainly affecting Chinese companies like Shein and Temu. The 50% tariff on Indian goods also came into force at the end of August and Mexico yielded to American pressure and began to plan for its own tariffs on Chinese imports. Although tariffs haven’t been a primary focus in the last few weeks, it’s important for traders to continue monitoring related news.

Euro-dollar Bounces From $1.16

Broadly speaking, economic data from the eurozone have improved in recent weeks, especially activity and business morale, while the American job market seems to be slowing more than expected this summer. Although the ECB has cut rates this year, it now seems less likely to loosen further, while the Fed will probably call for two cuts before the end of the year. If correct, that would leave the difference between the main refinancing rate and the funds rate at 1.6-1.85% by the end of December.

The main clear evidence sought for the end of the uptrend would probably be another lower high within the next few days or weeks, but in the short-term, at least, the trend is clearly sideways. Volume over the summer has been low as usual, so another clear directional movement might occur in September, especially around the upcoming NFP, the ECB, or the Fed’s meeting. $1.173 is a possible resistance in the short term, while $1.16 is confirmed as an area of support, having been tested unsuccessfully three times in August.

Dollar-yen Rebounds from ¥146.60 Again

Dollar-yen has been overall sideways for several weeks since the beginning of August amid generally lukewarm data from Japan. A hike in September by the BoJ had been expected earlier this year, but now seems very unlikely, while the Fed is likely to cut twice before the end of 2025. The BoJ’s governor Kazuo Ueda recently stated that wages are likely to continue rising, which would mean that a rate hike seems possible at some point later in the year.

¥146.60 is a confirmed support in the short term, with a number of unsuccessful tests in August. Around ¥148.30 might be a resistance, but this isn’t confirmed yet, having been clearly tested only twice in the last few weeks. As for many other major pairs, including euro-dollar, overall activity and volume have been low in August, which is seasonally normal. The next clear movement might occur with the return of volume in September around the NFP or the Fed’s meeting. Traders are also looking ahead to the BoJ’s meeting on 19 September for possible hints on a hike later in the year or early 2026.

This article was submitted by Michael Stark, an analyst at Exness.

The opinions here are personal to the writer; they do not represent the opinions of Exness or FX Empire. This is not a recommendation to trade.