Asian session review: US dollar is showing negative dynamics

During today's Asian trading, the US dollar declined against major currencies, retreating from a one-week high, helped by the results of the debates of the US presidential candidates. Investors are also adjusting their positions ahead of the release of US inflation data for August.

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) fell by 0.24% to 101.39, as Kamala Harris put rival Donald Trump on the defensive in the only scheduled debate of the U.S. presidential race. Investors broadly see the dollar strengthening in the event of a victory by Republican nominee Trump, as tariffs might prop up the currency and higher fiscal spending could boost interest rates. As for the US data, market participants hope that the CPI report will provide clues about how much the Fed will cut rates next week. According to forecasts, the overall CPI increased by 0.2% on a monthly basis, which will lead to a decrease in the annual rate to 2.6% (the lowest value since March 2021). Excluding food and energy, the core CPI likely rose 0.25% in August, which would be the largest increase in four months and keep the annual rate at 3.2%. A weaker-than-expected report could bolster market expectations of a 0,5% cut, but a steady reading may leave the 0,25% versus 0,5% debate unresolved. According to the CME FedWatch Tool, markets see a 35% probability of a 0.5% rate cut in September (down from 44% the week before), and a 65% probability of a 0.25% rate cut (up from 56% the week before).

The yen rose by 0.75% against the US dollar, hitting a fresh 2024 high against the background of political events in the United States and statements by Bank of Japan Board member Junko Nakagawa, who reiterated that the Central Bank will continue to raise interest rates if the economy and inflation meet forecasts.