Dollar Weakens as September Fed Rate Cut Bets Hold; Markets Watch Trump-Putin Meeting on Ukraine
The U.S. dollar eased on Friday, ending a volatile week filled with key economic data. The latest figures kept the case for a September Federal Reserve interest rate cut intact. Traders also turned their attention to talks in Alaska between President Donald Trump and Russian President Vladimir Putin over the Ukraine conflict.
On Thursday, the dollar had jumped after U.S. producer prices (PPI) rose more than expected in July. However, by Friday, it gave back most of those gains and was on track for a 0.5% weekly drop against a basket of major currencies.
Kyle Chapman, a forex analyst at Ballinger & Co in London, noted that while the PPI jump was surprising, there is still little solid evidence of a tariff-driven inflation spike. He added that with markets confident about a September rate cut, focus has shifted to the Alaska Trump-Putin summit.
According to the CME FedWatch Tool, money markets now price in a 93% probability of a 25-basis-point rate cut in September. This would be the first cut of 2025, with some economists expecting another by year-end amid growing concerns over the U.S. economy’s health.
Chicago Fed President Austan Goolsbee warned that rising services inflation, partly driven by tariffs, is a cause for “unease.”
Investors are also watching the Trump-Putin talks for any progress towards a Ukraine ceasefire. Chapman suggested that while expectations are low, any positive surprise could weaken the dollar and lift the euro, which gained 0.5% to $1.1708 on Friday.
U.S. data showed import prices rebounded in July, led by higher consumer goods costs. Retail sales also rose strongly, boosted by vehicle demand and promotions from Amazon and Walmart.
Markets now look ahead to next week’s Jackson Hole symposium for fresh guidance on Fed policy. Signs of labor market weakness combined with inflation from trade tariffs could complicate the Fed’s rate cut path.
Against the yen, the dollar fell 0.5% to 146.975, pressured by stronger-than-expected Japanese GDP data. The yen also gained support from comments by Treasury Secretary Scott Bessent, who said the Bank of Japan might be “behind the curve” on inflation.
Sterling strengthened, up 0.3% to $1.35705, heading for a 0.9% weekly gain after upbeat U.K. data and a hawkish Bank of England rate cut.
In cryptocurrencies, bitcoin and ether recovered after Thursday’s 4% drop. Bitcoin briefly hit a record high earlier in the week, supported by expectations of easier Fed policy and a pro-crypto stance in Washington.
