The US Dollar Index (DXY), which tracks the greenback against six major peers, is recovering after two consecutive days of losses, trading around 97.30 during Asian hours on Wednesday. Traders remain cautious ahead of key US economic data, including the second-quarter Gross Domestic Product (GDP) annualized figures and the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, both due later this week.
Powell stresses balancing act
The dollar’s rebound comes as Federal Reserve (Fed) Chair Jerome Powell reiterated a cautious stance, noting that the central bank faces “a challenging situation” in balancing persistent inflation with signs of a weakening labor market. His remarks echoed last week’s comments, emphasizing the Fed’s reluctance to move too aggressively on rate cuts.
Despite Powell’s warning, market expectations remain tilted toward easing. According to the CME FedWatch tool, money markets now assign a nearly 92% probability of a rate cut in October, up from 90% a day earlier.
Softening us economic data
Recent survey data suggests the US economy may be losing momentum. The flash S&P Global Purchasing Managers Index (PMI) showed that overall business activity slowed in September, with the composite reading easing to 53.6 from 54.6 in August. Manufacturing PMI slipped to 52.0 from 53.0, while the services index fell to 53.9 from 54.5, indicating softer demand across both sectors.
Geopolitical risks boost safe-haven demand
The dollar also benefits from safe-haven flows as geopolitical risks rise. At the United Nations (UN) General Assembly on Tuesday, US President Donald Trump threatened to impose a “very strong round of powerful tariffs” on Russia unless it ends its war in Ukraine. Trump also criticized European reliance on Russian energy, warning that “they are funding the war against themselves,” and urged the EU to coordinate with Washington on tougher tariff measures.
