The US Dollar Index (DXY) edged higher in early Asian trading on Wednesday, moving toward 98.50 after briefly touching 98.40. The uptick reflects cautious sentiment in global markets and safe-haven flows, even as expectations grow for a Federal Reserve (Fed) rate cut in September.
Market Drivers Supporting the Greenback
The ongoing Russia-Ukraine conflict, coupled with geopolitical uncertainty, continues to push investors toward the US Dollar. According to UBS strategist Vassili Serebriakov, “negative developments outside of the US” remain the primary force behind recent dollar strength.
At the same time, traders are keeping an eye on upcoming releases, including the US JOLTS Job Openings and the Fed’s Beige Book later in the day.
Why the Upside May Be Limited
Despite the current bounce, the Greenback’s gains could be capped. Fed officials have signaled a dovish stance, and markets are increasingly confident that policymakers will deliver a 25-basis-point rate cut this month. The CME FedWatch tool now shows a 91% probability, up from 85% just a week earlier.
Recent US data also supports the case for easing. The July Nonfarm Payrolls (NFP) report revealed weaker-than-expected job growth, raising concerns about a cooling labor market. Economists forecast just 75K new jobs in August, with the unemployment rate likely ticking up to 4.3%.
Trade Tensions Add Another Layer of Risk
Trade uncertainty could also weigh on the Dollar in the sessions ahead. A US appeals court recently ruled that tariffs imposed unilaterally by President Trump were illegal. In response, Trump vowed to appeal the decision to the Supreme Court, adding another source of market volatility.
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