Dollar Slips as Fed Rate Cut Bets Rise; Trump-Putin Summit in Focus

The U.S. dollar weakened on Friday, reversing gains from earlier in the week, as traders grew more confident that the Federal Reserve will move ahead with an interest rate cut in September. The decline came after a strong run of U.S. economic data, including solid retail sales and rebounding import prices, failed to shake market expectations of easier monetary policy. The dollar index, which tracks the greenback against a basket of major currencies, was set to end the week 0.4% lower.

Investor sentiment was shaped by contrasting signals: U.S. producer prices rose more than expected in July, but analysts argued the data lacked clear evidence of inflationary pressure from tariffs. “Markets remain firm on their bets for a September cut and the focus is now shifting to Alaska,” said Kyle Chapman, forex analyst at Ballinger & Co, referring to the upcoming meeting between U.S. President Donald Trump and Russian President Vladimir Putin over the Ukraine conflict.

According to CME FedWatch, money markets now price in a 93% chance of a 25-basis-point rate cut next month. Economists polled by Reuters also expect the Fed to deliver one more cut before the end of 2025, citing concerns over slowing growth and the impact of tariffs. Chicago Fed President Austan Goolsbee warned that rising services inflation and the risk of stagflation remain key concerns, though markets expect Fed Chair Jerome Powell to strike a cautious tone at next week’s Jackson Hole symposium.

The Trump-Putin summit in Alaska is also weighing on currency markets. Analysts note that while expectations for progress on a Ukraine ceasefire remain low, any positive outcome could boost the euro and weigh further on the dollar. On Friday, the euro gained 0.5% to $1.1702, while the yen strengthened to 147.23 per dollar after robust Japanese growth data. Sterling also rose, ending the week 0.7% higher after upbeat U.K. economic reports and a hawkish Bank of England rate cut.

Elsewhere, bitcoin steadied around $117,126 after briefly hitting a record high on Thursday, supported by optimism over looser Fed policy and a favorable U.S. regulatory climate for digital assets. With global markets awaiting signals from Jackson Hole and geopolitical developments from the Trump-Putin talks, traders remain cautious about the dollar’s outlook heading into September.

Source: Reuters