Dollar Refuses to Fall

The U.S. Dollar Index (DXY) advanced 0.73% to 98.44 points over the past week, while EURUSD fell 0.88% to 1.16170, reflecting heightened turbulence in the currency market. Dollar strength built steadily in the run-up to Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole symposium. Minutes from the latest Fed meeting confirmed that July’s decision was far from dovish, with only governors Christopher Waller and Michelle Bowman supporting a rate cut, while all other members backed holding rates at 4.50%. Strong August PMI data reinforced pro-inflationary concerns, and several Fed officials openly opposed a September cut, comments that many viewed as premature ahead of Powell’s keynote.

The political backdrop added further complexity. With midterm elections in 2026 approaching, U.S. President Donald Trump has been pressing for rate cuts to sustain economic momentum and support Republican control of the Congress. Frustrated by Powell’s reluctance to ease policy under political pressure, Trump has intensified efforts to reshape the Fed by appointing his own candidates and dumping other FOMC members.

Against expectations, Powell struck a dovish tone in his Jackson Hole speech, citing rising risks to the labour market and hinting that monetary policy adjustments could soon be necessary. Markets were caught off guard, interpreting this as a near-signal for a September rate cut. The EURUSD initially surged 1.23% to 1.17420, breaking through resistance in the 1.16000–1.17000 zone and temporarily surpassing the primary bullish target. However, the rally quickly faded, with the pair retreating back to the 1.16000–1.16100 area as investors questioned the durability of Powell’s pivot, viewing it as tactical rather than a fundamental shift.

Adding to volatility, Trump announced the removal of FOMC member Lisa Cook, which briefly lifted EURUSD by 0.40% to 1.16590. Had the pair sustained levels above 1.17000 into Tuesday, the move might have triggered a broader rally toward 1.19500–1.20500, but momentum stalled.

Institutional positioning suggests continued conviction in the Dollar. While some investors reduced their exposure closing a portion of their $30.3 million long-Dollar positions at a loss, the bulk of commitments remain intact. The WisdomTree Bloomberg US Dollar Bullish Fund (USDU) recorded $5.3 million in outflows last week, but a $22.0 million net position persists, indicating that large investors are still positioned for Greenback strength. This has led to speculation that the sharp reversal in EURUSD may reflect market intervention or deliberate efforts to contain Euro gains.

Looking ahead, upcoming U.S. GDP and PCE inflation data are unlikely to provide decisive direction. From a technical perspective, the 1.16000–1.17000 range remains the key battleground. A sustained breakout followed by a retest of the broken level would be required to confirm the next strong directional move.