Who Benefits from a Falling Dollar?

#EURUSD

Key zone: 1.1600 - 1.7000

Buy: 1.1750 (on strong positive fundamentals) ; target 1.1900-1.1950; StopLoss 1.1680

Sell: 1.1600 (after a retest of 1.1650) ; target 1.1450; StopLoss 1.1670

Wall Street expects further weakening of the dollar this year amid signs of economic slowdown and the Fed’s readiness to resume rate cuts. At Jackson Hole, Powell signaled the possibility of such a step as early as the September 17 meeting.

Market dynamics:

• S&P 500 fell 0.3%;
• Nasdaq 100 lost 0.5%;
• yield on 10-year Treasuries rose 3 bps to 4.23%;
• the dollar strengthened 0.2%.

Last week’s Core Personal Consumption Expenditures (Core PCE) index rose 0.3% m/m and 2.9% y/y – the highest since February, complicating the Fed’s task ahead of the September rate decision. The overall PCE index matched forecasts.

Reminder: this indicator is calculated in a very subtle way. The main difference between PCE and CPI is that it does not use a fixed basket of goods, but a “real” one, reflecting actual consumer behavior. For example, if households switch from expensive products to cheaper goods, the index records substitution and does not show a price increase. Then analysts can claim inflation has been defeated.

PCE is seen as a “soft” version of inflation, and if it comes in worse than forecasts, it shocks the markets.

In this case, the figure matched expectations, meaning inflation was exactly as high as predicted. Strong GDP data and a weak labor market together gave a neutral signal, so prices barely moved. However, within hours the market realized that the Fed’s key inflation indicator has been rising at maximum pace for six consecutive months, triggering a correction.

From the Fed’s perspective, the September decision is predictable. A rate cut has long been priced in, and one should not expect explosive growth afterward. In August, the market already tried to rally on CPI and on PPI weakness, but the momentum quickly faded.

Now attention shifts to the Fed’s October and December meetings. The September 16–17 meeting will matter not because of the 0.25% cut itself, but because of Powell’s rhetoric in the press release. If the rate is not cut (with CME showing a probability of about 10%), markets face a sharp collapse.

The main trigger of the week remains the NFP release. Continued deterioration in labor data will give the Fed grounds to cut rates several times in a row.

Keep in mind that employment dynamics are influenced not only by Trump’s migration policy restrictions, but also by mass layoffs of government employees by Elon Musk’s DOGE corporation. Previously, dismissed employees were still counted as employed, so large revisions are expected in autumn, which will be another blow to the dollar.

So we act wisely and avoid unnecessary risks.

Profits to y’all!