Market Drivers -US Session: Are Two Fed Rate Cuts Enough to Reignite the Dollar?

The US Dollar (USD) is showing signs of life, snapping a five-day losing streak and climbing to multi-day highs on Tuesday. This sudden reversal is driven by a market reassessment, as investors begin to factor in the possibility of at least two interest rate cuts from the Federal Reserve later this year. This outlook has provided the greenback with a much-needed boost, though its long-term trajectory remains uncertain. The DXY, which tracks the Dollar against other major currencies, was propped up by a decent rebound in US Treasury yields, pulling it higher across the board.

What to Watch in Key Markets

The Dollar’s rebound has created ripple effects across global currency and commodity markets.

Euro (EUR/USD): The euro came under renewed pressure, retreating to a four-day low around the 1.1610 mark. This decline comes as markets prepare for the release of final services PMI data and producer prices from the eurozone.

Pound Sterling (GBP/USD): The British pound collapsed to its lowest point in four weeks, revisiting the 1.3340 zone. Concerns over the UK’s fiscal stability are weighing on the currency, with all eyes on the upcoming final S&P Global Services PMI.

Yen (USD/JPY): The Japanese yen continued its recovery against the dollar, bouncing to a five-week high near the 149.00 level.

Australian Dollar (AUD/USD): The Aussie dollar reversed course, deflating to multi-day lows near 0.6480. Key data releases on Wednesday include the Ai Group Industry Index, the final S&P Global Services PMI, and the Q2 GDP Growth Rate.

Crude Oil: Oil prices briefly touched a four-week high, moving past the $66.00 per barrel mark. This rise was fueled by geopolitical tensions ahead of the OPEC meeting over the weekend.

Precious Metals Shine as Dollar Rebounds

Despite the US Dollar’s recent gains, the appeal of precious metals remains strong. Speculation of future interest rate cuts from the Fed has given gold extra momentum, lifting it to a new all-time high near $3,530 per ounce. Silver has also extended its own rally, coming close to the $41.00 mark, its highest level in 14 years. The simultaneous rise of both assets suggests that while the Dollar may be regaining some footing, a broad-based desire for safe-haven assets persists among investors.

Is the recent Dollar rally just a temporary bounce, or could it be the start of a more sustained recovery? The upcoming economic data, including weekly mortgage applications and job openings, as well as a speech from a Federal Reserve official, will provide critical clues.