US Dollar weakened ahead of Jackson Hole meetings

The US Dollar (USD) has declined to its lowest levels since January 2024 as markets anticipate key communications from the Federal Reserve at the Jackson Hole Symposium.

On Monday, the dollar index was down 0.49% at 101.96 – whilst GBP/USD was up at 1.29865, and EUR/USD was up at 1.10747.

This week, traders are looking to the Federal Reserve to signal a dovish shift, potentially setting the stage for an interest rate cut in September.

This expectation has contributed to a sustained weakening of the USD.

The recent fluctuations in the USD have been driven more by technical factors than macroeconomic changes, according to analysts at Goldman Sachs, who reckon there’s opportunity for “for tactical trades”.

Nevertheless, the American bank’s analysts noted the cooling US economy and the market’s anticipation of Federal Reserve rate cuts. That point, Fed policy, is the remaining elephant in the room.

Goldman reckons it is challenging to maintain a bullish stance on the dollar – even temporarily – until the Fed's policy path becomes clearer.

"The Dollar has been mixed, for a couple of reasons. First, the fundamental outlook has changed somewhat,” Goldman’s FX analysts said in a note.

“With clear evidence that the economy has slowed and the labor market has cooled, the US is ‘not so exceptional’ anymore."

One narrative amongst market commentators, meanwhile, describes the decline as part of an “orderly adjustment cycle”.

Despite some signs of resilience, such as strong retail sales data from July, the overall momentum remains negative for the USD.

Among the forex crosses, the Japanese Yen was one of the strongest performers against USD.

As this week progresses, market participants will watch closely the speeches from Federal Reserve officials, especially a highly anticipated address by Fed chair Jerome Powell.