US Dollar Rebounds as Powell Strikes Cautious Tone on Rate Cuts

US Dollar Bounces Back as Powell Remains Cautious on Rate Cuts

The US Dollar (USD) is seeing modest gains on Wednesday, staging a recovery from its lowest level since February 2022, following stronger-than-expected economic data and cautious language from Federal Reserve Chairman Jerome Powell.

The US Dollar Index (DXY), which tracks the performance of the Greenback against six major currencies, is trading near 97.00, up about 0.30% during the European session. The rebound marks a turnaround after Tuesday’s sharp decline.

Strong US Data Supports Dollar

Economic indicators out this week have helped calm concerns over a possible sharp slowdown in the US economy:

• ISM Manufacturing PMI rose to 49.0 in June, up from 48.5 and above forecasts.
• JOLTS Job Openings climbed to 7.76 million, beating the expected 7.3 million and signaling labor market resilience.

These readings, while still below expansion levels, hint at underlying strength in US manufacturing and labor sectors, adding some support to the Dollar's foundation.

Powell Keeps Markets Guessing

Speaking on Tuesday, Fed Chair Jerome Powell said the central bank is not rushing to cut interest rates. The Fed is waiting to assess the full inflationary impact of US tariffs and observe more incoming data.

"We need to better understand the economic effects of current tariff policy before making our next move," Powell stated.

His balanced tone helped temper some of the more aggressive rate-cut expectations for July, although markets still anticipate a rate cut by September, as implied by the CME FedWatch Tool.

Market Focus Shifts to Jobs Data

Investors are now turning their attention to the June ADP Employment Change, due later today, and the Nonfarm Payrolls (NFP) report scheduled for Thursday.

These figures could be pivotal in shaping the Federal Reserve's next rate decision, and therefore the short-term direction of the US Dollar.

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• NFP Preview: Key Indicators to Watch