The US Dollar Index (DXY) fell sharply on Thursday, dropping below 99.00 to its lowest level in over a week and trading around 98.90, down 0.67% on the day after reaching 99.86 on Wednesday [1]. This decline was led by a strong rally in the Japanese Yen, with USD/JPY falling around 2% to near 155.45, its lowest in a month and close to the post-July intervention low of 155.24. Speculation about possible intervention by Japanese authorities increased, though there was no official confirmation [1].
The US Dollar's weakness was further exacerbated by a modest pullback in US Treasury yields, with the 10-year yield retreating to around 4.75% from a recent high of 4.81% [1]. The selling pressure intensified after Federal Reserve Governor Christopher Waller made less-hawkish comments, stating he is 'finally seeing some signs of disinflation' and suggesting the Fed could wait one meeting before considering a rate hike. However, Waller also warned he would support a hike if inflation trends reverse in August [1][2].
Market expectations for a September rate hike shifted notably. According to the CME FedWatch Tool, the probability of a hike at the September meeting dropped to around 50% from 63% a day earlier [1]. Prime Terminal data cited in the second article puts the odds at 54% for a hike and 46% for holding rates steady [2]. This dovish tilt by Waller contributed to a surge in gold prices, with XAU/USD rallying more than 2% on Thursday and trading at $4,487 at the time of writing [2]. Gold broke above the September 1 high of $4,461 and accelerated toward $4,500, with technical indicators suggesting further upside potential [2].
US economic data released Thursday was mixed. Initial Jobless Claims rose to 206K, slightly above expectations of 205K, while the ISM Services PMI increased to 55.4 in August from 54.1 in July, beating the forecast of 54.3 [1][2]. The ISM Services Prices Paid sub-component jumped to 72.6, the highest since August 2022 [2]. Despite the solid services activity, traders focused on Waller's dovish comments and the upcoming Nonfarm Payrolls (NFP) report. The NFP is expected to show an increase of 56K to 58K jobs in August after a 23K contraction in July, with the unemployment rate forecast to remain at 4.1% [1][2].
Looking ahead, traders are watching for further Fed commentary and Friday's NFP report, which could influence the Fed's rate decision and the direction of the US Dollar and gold. A stronger-than-expected NFP could revive rate hike expectations and support the Dollar, while a weak report may reinforce the case for holding rates steady, potentially driving further gains in gold [1][2].
CONCLUSION
The US Dollar's decline and gold's rally were driven by dovish signals from Fed Governor Waller and shifting market expectations for a September rate hike. Mixed US economic data and anticipation of the upcoming Nonfarm Payrolls report have heightened market sensitivity. The outcome of the NFP will be pivotal for the Fed's next move and could set the tone for both currency and commodity markets in the near term.