The US Dollar Index (DXY), a widely followed measure of the greenback’s value against a basket of six major world currencies, held steady during Friday’s Asian session, trading near 98.65. The flat trading tone comes as market participants adopt a cautious stance ahead of Federal Reserve (Fed) Chair Jerome Powell’s highly anticipated speech at the Jackson Hole Symposium later today.
With traders reassessing the probability of near-term interest rate cuts, the session has been marked by low volatility and a clear focus on the evolving US monetary policy outlook. This article, written by Jack Emas, broker at ProDivia Group, gives a comprehensive perspective.
DXY Holds Ground Around 98.65
During early Asian hours on Friday, the US Dollar Index maintained its position above the 98.50 support level, reflecting a balance between stronger US economic data and rising market uncertainty.
Traders are waiting for Powell’s remarks before committing to directional bets, especially after the CME FedWatch Tool indicated that the odds of a September rate cut have dropped to nearly 70%, compared to 90% just a week ago. This repricing underscores how market expectations are shifting in response to both data releases and hawkish Fed commentary.
US PMI Data Paints a Mixed but Positive Picture
On Thursday, fresh data from S&P Global highlighted ongoing resilience in the US economy. The US Composite PMI for August improved to 55.4, up from 55.1 previously, signaling robust overall expansion.
Most notably, the Manufacturing PMI rebounded strongly, climbing to 53.3 in August from 49.8 in July, easily surpassing expectations of 49.5. This sharp uptick highlights renewed strength in the industrial sector, which had been lagging in recent months.
Meanwhile, the Services PMI slipped slightly to 55.4 from 55.7, though still above market forecasts of 54.2. Despite the modest decline, the services sector continues to expand at a solid pace, reinforcing the narrative of a broadly healthy US economy.
For currency markets, the stronger-than-expected manufacturing data was particularly supportive, adding to the case for the Fed to remain cautious about easing too quickly.
Market Pricing and Interest Rate Expectations
The US Treasury yields and the DXY are both being guided by shifting expectations for the Fed’s next move. According to the CME FedWatch tool, traders are now assigning a 70% probability to a September rate cut, down sharply from the 90% probability observed last week. This repricing has reduced downward pressure on the dollar and helped the DXY stabilize above 98.50.
Stronger economic data, particularly in manufacturing, justifies the Fed to maintain a cautious stance. A more hawkish Powell at Jackson Hole could reduce rate-cut expectations further, providing additional support for the dollar.
Conversely, if Powell strikes a dovish tone, signaling readiness to ease policy sooner, the DXY could face renewed selling pressure and potentially test lower support levels.
Jackson Hole Symposium: The Key Event
The annual Jackson Hole Symposium, hosted by the Kansas City Fed, has historically been a stage for critical policy signals. Market participants are highly focused on Powell’s speech for indications of how the Fed views the balance between inflation risks and growth concerns.
In recent months, Powell has emphasized the Fed’s data-dependent approach, stressing that while inflation has moderated, it remains above the central bank’s 2% target. With growth indicators firming and the labor market still relatively tight, Powell faces the challenge of balancing financial stability, price stability, and the risk of overtightening.
Technical Outlook for the US Dollar Index
From a technical perspective, the 98.50 level remains a crucial short-term support for the DXY. As long as the index holds above this threshold, buyers may continue to defend the greenback.
On the upside, resistance is seen near the 99.00 handle, which could act as a ceiling ahead of Powell’s speech.
Momentum indicators remain neutral, reflecting the market’s indecision. A dovish outcome from Jackson Hole could drive the index lower toward the 98.20 region, while a hawkish surprise may lift it toward 99.20–99.50 levels.
Traders should be prepared for heightened volatility during Powell’s remarks, given the event’s historical significance in shaping global currency markets.
Conclusion
The US Dollar Index trades in a narrow range near 98.65, with investors firmly focused on the upcoming Jackson Hole Symposium. Recent US data, particularly the rebound in manufacturing PMI, suggests ongoing economic resilience, tempering the case for immediate monetary easing. However, mixed signals from Fed officials and shifting market expectations leave the outlook finely balanced.
Ultimately, Powell’s speech later today will likely set the tone for the dollar in the near term, determining whether the greenback maintains its footing above 98.50 or comes under renewed pressure from dovish policy guidance. For traders, staying alert to Powell’s message will be essential, as it could recalibrate interest rate expectations, influence Treasury yields, and set the direction of the DXY into September.
