The dollar index held below 103.5 on Thursday, after retreating from over two-month highs in the previous session. Investors were cautiously awaiting Federal Reserve Chair Jerome Powell’s address at the central bank’s annual symposium at Jackson Hole, Wyoming this week, for further clues on the monetary policy outlook.
On Wednesday, the dollar came under pressure as Treasury yields fell sharply after data showed US business activity nearly stagnated in August. The S&P Global flash US Composite PMI declined to 50.4 in August, the weakest upturn in activity since February and below market expectations of 52. This raised hopes that the Fed would halt its interest rate hikes to avert a recession.
However, some analysts believe that the Fed is still likely to raise interest rates in September, even after the weak data. They argue that the Fed is committed to its inflation-fighting mandate and that the recent slowdown in economic growth is likely to be temporary.
The dollar index is likely to remain volatile ahead of Powell’s speech. If Powell signals that the Fed is still on track to raise interest rates, the dollar could strengthen. However, if Powell expresses concerns about the economy and hints at a more dovish stance, the dollar could weaken.
The following are some of the key factors that could influence the dollar index in the near term:
- The outcome of the Jackson Hole Symposium
- The release of US economic data, including the non-farm payrolls report
- The developments in the Russia-Ukraine conflict
- The risk appetite of investors
Overall, the dollar index is likely to remain range-bound in the near term, with the potential for both gains and losses