Jackson hole will decide the Dollar’s fate

EUR/USD

Key zone: 1.1650 - 1.1750

Buy: 1.1750 (on a decisive break above 1.1730) ; target 1.1950-1.2000; StopLoss 1.1680

Sell: 1.1600 (on strong negative fundamentals) ; target 1.1450-1.1350; StopLoss 1.1670

The dollar enters the week ahead of Jackson Hole in a weak position. DXY is hovering near three-month lows, while the market increasingly doubts the U.S. currency’s sustainable advantage. The reason is simple: the fundamental picture no longer works in the greenback’s favor the way it once did.

The U.S. economy is not collapsing yet, but there is no convincing argument for further Fed tightening either. At the same time, Washington itself is putting additional pressure on the dollar by trying to keep the cost of government debt under control while financing a growing budget deficit.

A reminder:

The latest data are not saving the greenback

• Friday’s business activity data gave the dollar another mixed signal.
• The August Manufacturing PMI fell to 53.2 from 53.9 previously and came in below expectations.
• The services sector showed the opposite trend: PMI rose from 54.6 to 56,.
• The Composite Index climbed from 54.5 to 56.0.

In other words, the U.S. economy does not look as though it is already heading straight into recession. But Wall Street is watching more than just the Fed.

The yield on 30-year U.S. Treasuries remains near multi-year highs. For Washington, this is becoming an increasingly painful problem: the higher long-term yields rise, the more expensive it becomes to finance government debt.

And this is where the Treasury comes in: the U.S. Treasury increased its Treasury buyback program from $2 billion to $4 billion per month in an effort to support liquidity at the long end of the market.

If investors see the Treasury’s actions as an attempt to artificially prevent long-term rates from rising further, an uncomfortable question arises: where does liquidity management end and management of government borrowing costs begin?

And this is no longer just a bond-market problem. It is a problem of confidence in U.S. economic policy.

If buybacks support Treasury prices and lower yields, U.S. assets lose part of their interest-rate advantage. That is bad news for the dollar.

Even worse, the market may conclude that the Treasury is being forced to intervene precisely because private demand for long-term U.S. debt is not strong enough at the current level of borrowing. In that case, a program designed to stabilize the market could have the opposite effect.

The Middle East remains the only factor capable of sharply changing the dollar’s outlook. A new package of U.S. sanctions against Iran is intended to increase economic pressure on Tehran. Iran has already threatened further restrictions on oil exports through the Persian Gulf. China, in turn, is prepared to defend its national interests in the event of secondary U.S. sanctions.

This creates an unpleasant paradox: geopolitical escalation simultaneously supports the dollar as a safe-haven asset and creates additional inflationary risk for the U.S. economy itself. If disruptions to energy supplies intensify, the Fed will face an even more toxic choice: fight inflation with high interest rates or take deteriorating economic conditions into account.

The Jackson Hole symposium begins on August 27. The 2026 theme is “Financial Innovation: Implications for Payments and the Monetary System.” But innovation is the last thing the market cares about right now. Investors will be listening for only one thing: what Kevin Warsh plans to do with rates on September 16. On Friday, he will deliver his first major speech since taking office on May 22.

So far, his public remarks have provided the market with virtually no clear guidance on future policy. Now Warsh will have to show how independent the Fed remains amid growing pressure from Washington, problems in the Treasury market, and mixed macroeconomic data.

And most importantly, whether he will tie future decisions to economic data — or whether the market will hear in his words a response to U.S. fiscal problems.

So, what does this mean?

The market is effectively betting against the dollar right now. Not because the U.S. economy is already falling apart and not because the Fed is guaranteed to begin aggressively cutting rates.

Weak and mixed data are limiting expectations for a hawkish Fed. High Treasury yields are turning from an advantage into a source of fiscal risk. And Treasury intervention is forcing investors to question how long Washington can control the cost of its own debt.

That is why Jackson Hole is becoming more than just another speech by the Fed chair — it is a test of confidence in the new U.S. economic policy.

EUR/USD above 1.17 will keep the initiative with buyers. If Warsh fails to give the market a convincing hawkish signal, the dollar risks extending its decline. But if the Fed chair firmly ties policy to inflation and makes it clear that a September rate cut is far from predetermined, the greenback will have a chance for a sharp rebound.

So we act wisely and avoid unnecessary risks.

Profits to y’all!