2025-09-02
The quick answer is no, as many predictions suggest that the U.S. dollar will continue to decline or stay within a range next week, rather than appreciating.
The U.S. Dollar Index (DXY) faces pressure from elevated expectations for Fed rate cuts and geopolitical uncertainties, compounded by concerns over the Fed's independence.
Analysts expect a continued slide unless economic surprises shift sentiment.
The dollar recently slipped to a one-month low of 97.8 on the DXY, down over 9% year-to-date. This drop comes amid rising expectations (now 86% odds) of a Fed rate cut in September after dovish comments from Chair Powell.
In addition, the dollar is on track for a 2% decline in August, as markets increasingly price in a September rate cut amid concerns over Fed independence. (Reuters)
A Reuters poll reveals growing scepticism among FX analysts as political pressures on the Fed, concerns over U.S. debt, and increasing expectations for rate cuts are holding the dollar back. The overall prediction suggests that the dollar will continue declining.
As to why the dollar is likely to stay soft or drop further, experts state:
Rate-Cut Expectations: Markets now price in high odds of a September Fed rate cut, common with declining USD strength.
Policy & Political Uncertainty: Concerns about Fed independence and data integrity have shaken confidence in the dollar's safe-haven status.
Technical Support Holding: Analysts forecast the DXY finding support near 96.6, with upside limited in the absence of hawkish surprises.
CambridgeCurrencies projects short-term dollar softness, but a possible rebound by late Q3 or early Q4, particularly if inflation spikes or the Fed signals a pause.
The weekly FX outlook (Sept 2–6) shows a dip in the dollar, especially against the euro, which benefits from near-2% inflation and stable expectations.
EUR/USD has broken above 1.17, drifting toward 1.1735, with economists such as ING and UOB forecasting potential moves toward 1.1750–1.1830. Weakness in the dollar is central to that scenario. (Daily Forex)
1) Nigerian Naira
The NGN has strengthened in the black market as the U.S. dollar has faltered globally.
2) Chinese Renminbi
The Chinese renminbi reached its strongest level against the dollar since November 2024, buoyed by a booming trade surplus and orderly currency policy. (Financial Times)
Certain events could buck the weakening trend:
Strong U.S. Jobs Data: A surprise spike in non-farm payrolls or wages could rekindle Fed hawkishness, boosting the dollar.
Unexpected Fed Hawkishness: Any pushback against rate-cut expectations, especially at the September FOMC, could stabilise the dollar.
Risk-Off Sentiment: Global shocks may lift demand for haven currencies, but the current political volatility may limit this support.
Sunday Preview Data: Monitor initial labour market information and corporate announcements ahead of significant U.S. reports.
U.S. Jobs Report & Powell's Comments: These remain the primary catalysts for near-term dollar moves.
EUR/USD Break Levels: Sustained closes above 1.1750 could herald further USD weakening.
Market Sentiment: A shift to risk-off (Geopolitical events) might briefly support the dollar, yet underlying pressures continue to be negative.
Many analysts anticipate that the dollar will stay weak or fluctuate sideways next week due to strong expectations for a Federal Reserve interest rate cut in September and persistent worries about Fed independence.
The EUR/USD pair has broken above 1.17, and analysts see potential gains toward 1.1750–1.1830, suggesting further weakness in the dollar unless U.S. data changes sentiment.
Yes. Any hawkish shift in Fed communication could boost the dollar, but markets are currently pricing in an 86% probability of a September rate cut, which maintains pressure on the dollar.
While the dollar traditionally strengthens during global risk events, political pressure on the Fed and U.S. fiscal concerns are reducing its safe-haven appeal compared to gold, the yen, or the Swiss franc.
The consensus forecast indicates that the dollar index (DXY) is positioned around 97.8, with support at approximately 96.6, implying greater downside risks compared to upside potential unless unforeseen economic or geopolitical events arise.
In conclusion, the near-consensus view remains that the dollar will likely drift sideways or decline next week unless data or Fed messaging turns hawkish.
Monitoring labour data, Fed commentary, and EUR/USD dynamics will be critical in anticipating any deviation from this path. Only a hawkish surprise or market shock might pause or reverse the trend.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
