The US dollar declined against most major currencies on Tuesday, as markets continued to assess the results of the summit that brought together leaders from the United States, Europe, and Ukraine, while investors await the monetary policy signals expected from the Federal Reserve’s annual symposium in Jackson Hole at the end of the week.
Both the euro and the British pound recorded limited moves between gains and losses against the dollar, rising in late trading by about 0.2% and 0.1% to $1.1683 and $1.3520 respectively, while both the Japanese yen and the Swiss franc posted slight gains.
During the summit, US President Donald Trump assured his Ukrainian counterpart Volodymyr Zelensky that the United States would help guarantee Ukraine’s security in any agreement to end the war with Russia. This came during a meeting at the White House, which was also attended by a number of European allies, following Trump’s meeting with Russian President Vladimir Putin in Alaska last Friday.
However, these developments did not give markets a clear direction in the foreign exchange markets, while European stocks recorded slight gains. Sami Shaar, chief economist at Lombard Odier, said that the relatively low energy costs in Europe and its lack of exposure to developments in the war make it unlikely that these issues will be a major market driver.
Summer holidays in the northern hemisphere also contributed to lower liquidity levels, which was reflected in weak trading volumes.
On the macro level, investors are awaiting the outcome of the Jackson Hole symposium, during which Fed Chairman Jerome Powell will speak about economic prospects and the monetary policy framework. Although markets are pricing in with more than 80% probability a rate cut in September, according to the CME FedWatch tool, analysts expect Powell to avoid committing to a clear policy path before August data is released.
Shaar said: “The market expects signals confirming that the September cut is guaranteed, but I’m not sure that this is what will happen.”
According to analysts at DBS, Powell is likely to send a balanced message, “keeping the door open for a preventive rate cut to avoid further deterioration in the labor market, while at the same time warning against excessiveness or haste in the cuts.”
The Fed’s July meeting minutes are due on Wednesday, which may reveal insights into policymakers’ thinking regarding the rate path, although the meeting preceded a weak jobs report that led investors to price in the cut more strongly.
As for other currencies, the Hong Kong dollar was among the notable movers, rising 0.3% to 7.7944 against the US dollar as interbank interest rates climbed to the highest level in three months, within the narrow trading band allowed between 7.75 and 7.85.
Digital currencies, meanwhile, were dominated by declines, with Bitcoin falling 1.5% to mark a third straight day of losses after hitting a record high last week, while Ethereum dropped 2.7%.
The Australian and New Zealand dollars remained stable, while the Swedish krona rose 0.3% to 9.5360 against the US dollar.
