US Dollar Index Holds Above 98.00 as Waller Emerges as Favorite to Chair the Federal Reserve
The US Dollar Index (DXY) is trading in positive territory near 98.15 during Friday’s Asian session, rebounding from a two-day losing streak. The renewed strength comes on the back of reports suggesting that Federal Reserve Governor Christopher Waller has emerged as the top contender to replace current Fed Chair Jerome Powell.
While this development has lifted the Greenback in the short term, a dovish Fed outlook and growing expectations of interest rate cuts in September could limit further upside momentum.
Waller’s Potential Leadership Boosts Dollar Sentiment
Waller, known for his measured approach to monetary policy, recently supported a quarter-point rate cut, even as most colleagues voted to keep rates unchanged. He has also suggested that the Fed could “look through” inflationary effects of tariffs, viewing them as temporary rather than persistent.
Meanwhile, Atlanta Fed President Raphael Bostic echoed a cautious stance, predicting one rate cut this year but warning that tariff-driven inflation may linger longer than expected.
Rate Cut Expectations Surge Amid Weak US Data
Market conviction for a September Fed rate cut has risen sharply. According to the CME FedWatch Tool, traders now see a 94% probability of a 25 bps cut—up from just 48% a week earlier.
This shift follows several weak economic indicators:
- Employment growth slowed sharply in the past three months.
- Consumer spending showed signs of softening.
- Initial Jobless Claims (week ending August 2) rose to 226K, above expectations of 221K and the prior week’s 218K.
How Fed Policy Shapes the US Dollar
As the global reserve currency, the US Dollar is deeply influenced by Fed decisions:
- Higher interest rates → Stronger USD.
- Rate cuts → Weaker USD.
- Quantitative Easing (QE) → Typically weakens USD.
- Quantitative Tightening (QT) → Supports USD strength.
DXY Outlook
The short-term direction for the DXY will hinge on:
- Confirmation of Waller’s appointment and his policy tone.
- Upcoming US economic data on inflation and jobs.
- September Fed meeting outcome.
If rate cut bets strengthen, the USD could face renewed selling pressure despite current gains
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