Dollar Weakens as Markets Price in September Fed Rate Cut Amid Political Pressure on Central Bank

Economic

Forex

Summary:

The U.S. dollar fell after subdued inflation data reinforced market bets on a Federal Reserve rate cut in September, while political tensions over Fed independence added further downward pressure.....

Soft Inflation Data and Rate Cut Expectations

The dollar lost ground on Wednesday as July’s U.S. consumer price index showed only a marginal increase, aligning with forecasts and suggesting limited inflationary impact from recently imposed tariffs. This restrained price growth reinforced expectations of monetary easing, with markets pricing in a 98% probability of a September Fed rate cut. The shift in expectations had an immediate dampening effect on the currency, pushing the dollar index to 98.08 after a 0.5% drop the previous session. Against the yen, the dollar edged down to 147.76, while the euro remained stable at 1.1676 after notable gains a day earlier. The relationship here is direct: softer inflation readings increased confidence in policy easing, which reduced the dollar’s appeal and lowered Treasury yields.

Despite heavy market positioning toward a rate cut, some analysts urged restraint in declaring the decision inevitable. Carol Kong of the Commonwealth Bank of Australia noted that individual data releases, such as payroll figures, can rapidly alter the policy outlook. This indicates that while market sentiment is skewed toward easing, the actual Fed decision remains contingent on further economic data in the weeks ahead. The two-year Treasury yield, sensitive to rate expectations, fell to 3.7371% after volatile swings, while the benchmark 10-year yield stayed near 4.2965%, reflecting an overall dovish shift in rate expectations without a major change in long-term growth outlook.

Political Tensions and Central Bank Independence

Adding a second layer of downward pressure on the dollar were political developments concerning Federal Reserve independence. White House spokeswoman Karoline Leavitt disclosed that President Donald Trump was considering legal action against Fed Chair Jerome Powell over the management of renovations at the central bank’s headquarters. This public confrontation, alongside Trump’s repeated criticisms of Powell for not cutting rates sooner, raised investor concerns over potential interference in monetary policy. Such tensions can influence currency markets indirectly by undermining institutional credibility and market confidence. Trump also targeted Goldman Sachs CEO David Solomon, questioning his leadership and criticising the bank’s prior economic forecasts on tariffs.

In the broader currency market, sterling inched up to 1.3504 despite weak UK labour market data that showed softening employment but resilient wage growth. The mixed signals explain why the Bank of England remains hesitant to cut rates too quickly, with analysts still projecting a possible move in November depending on incoming data. The Australian dollar dipped to 0.6526 and the New Zealand dollar to 0.5953 following the Reserve Bank of Australia’s rate cut and guidance that more easing may be necessary as domestic economic momentum fades.

The near-term direction of the U.S. dollar will hinge on incoming U.S. economic indicators that could either confirm or weaken the case for a September rate cut. While subdued inflation provides a supportive backdrop for monetary easing, the combination of political pressure on the Fed and external currency market dynamics suggests the dollar may remain under pressure. However, if forthcoming data points to stronger economic resilience or if geopolitical risks drive safe-haven flows, the currency could find support despite the current dovish policy bias.

Source: Reuters

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[Quick Facts]

1. Iran: Willing to directly conduct nuclear negotiations with U.S. under favorable conditions.

2. OPEC raises 2026 global oil demand forecast.

3. Trump-Nominated U.S. Labor Statistics Chief once proposed halting monthly jobs data.

4. Trump Administration expands list of potential Fed Chair successors.

5. Trump: Powell should cut rates immediately, considering a major lawsuit against him.

6. U.S. national debt exceeds $37 trillion for the first time.

7. Barkin: Balance between inflation and employment still uncertain.

[News Details]

Iran: Willing to directly conduct nuclear negotiations with U.S. under favorable conditions

According to a report by the Islamic Republic of Iran News Agency (IRNA) on August 12th, Iranian First Vice President Ali Aref stated in Tehran that if conditions are favorable, Iran is willing to directly engage in nuclear negotiations with the United States. However, he dismissed U.S. demands for Iran to completely abandon uranium enrichment activities as "a big joke."

OPEC raises 2026 global oil demand forecast

The Organization of the Petroleum Exporting Countries (OPEC) raised its projection for global oil demand growth in 2026 in its monthly oil market report released on the 12th, while keeping its 2025 forecast unchanged. The report noted that global daily oil demand in 2026 is expected to increase by approximately 1.38 million barrels compared to 2025, reaching 106.5 million barrels. In 2025, global daily oil demand is projected to rise by 1.29 million barrels year-on-year, hitting 105.1 million barrels.

Trump-Nominated U.S. Labor Statistics Chief once proposed halting monthly jobs data

EJ Antoni, the economist from the Heritage Foundation who was nominated by U.S. President Donald Trump to lead the Bureau of Labor Statistics (BLS), previously told Fox Business that the agency should suspend the release of its monthly employment report. Antoni argued that until underlying issues are resolved, the BLS should halt monthly employment data releases but continue publishing more accurate, albeit less timely, quarterly reports. The Fox Business interview with Antoni occurred before Trump publicly nominated him on Monday. Antoni has long been a critic of the BLS.

Trump Administration expands list of potential Fed Chair successors

According to Politico, Trump administration officials are broadening the list of candidates to succeed Federal Reserve Chair Jerome Powell next year, seeking someone who can earn both the president's trust and the confidence of financial markets. A senior administration official speaking on condition of anonymity revealed that potential candidates include: current Federal Reserve Vice Chair Philip N. Jefferson and Michelle Bowman; Dallas Fed President Lorie K. Logan; former St. Louis Fed Chair James Bullard; and macroeconomic advisor Marc Sumerlin. The official noted that more private-sector candidates may also be considered. These individuals will be added to an existing roster that includes White House National Economic Council Director Kevin Hassett, former Federal Reserve Governor Kevin Warsh, and current Federal Reserve Governor Christopher Waller. This expanded list signals that officials aim to present Trump with a diverse array of options to replace Powell.

Trump: Powell should cut rates immediately, considering a major lawsuit against him

"Jerome Powell must cut rates immediately. The damage he has caused by always being behind the curve is incalculable. Fortunately, the economy is so strong that we have overcome Powell and the complacent Board of Governors." This was written by US President Donald Trump on Truth. "However, I am considering allowing a major lawsuit to proceed against Powell for the horrible and grossly incompetent job he did in managing the construction of the Fed buildings. Three billion dollars for a project that should have cost 50 million dollars for a simple renovation. This is not good!'

U.S. national debt exceeds $37 trillion for the first time

On August 12th, the total U.S. national debt surpassed 37 trillion for the first time as the federal government continued to accumulate debt at a record pace. The latest data released by the U.S. Treasury Department showed that by the afternoon of that day, the total debt had reached $37,004,817,625,842. Maya MacGuineas, chair of the Committee for a Responsible Federal Budget, commented that the U.S. fiscal situation is severely unbalanced, yet Congress continues to worsen the problem.

Barkin: Balance between inflation and employment still uncertain

In remarks on Tuesday, Richmond Fed President Barkin stated that uncertainty over the direction of the US economy is decreasing, with tax legislation, tariff agreements, and improving consumer and business confidence providing clearer signals for the future. However, he emphasized that it's unclear whether the Federal Reserve should focus more on taming inflation or supporting the labor market going forward.

"We may well see pressure on inflation, and we may also see pressure on unemployment, but the balance between the two is still unclear." The Fed, he added, will maintain ample flexibility in policy adjustments and will gather more data before its September policy meeting to inform its decisions.

Despite the latest jobs report, the labor market is “in relative balance” still in a low-firing, low-hiring environment. However, businesses are being more cautious in hiring, particularly as skill-based positions continue to prove difficult to fill.

[Today's Focus]

Utc+8 16:00 IEA Releases Monthly Oil Market Report

Utc+8 19:30 Richmond Fed President Barkin Delivers Remarks

Utc+8 01:00 Chicago Fed President Goolsbee Speaks on Monetary Policy

Utc+8 01:30 Atlanta Fed President Bostic Discusses U.S. Economic Outlook

Utc+8 01:30 Bank of Canada Releases Monetary Policy Meeting Minutes

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Gerik

Economic

Commodity

U.S. Inventory Trends and Seasonal Demand Signals

Oil prices showed minimal movement on Wednesday following a prior session decline, as market data pointed to an end-of-summer slowdown in U.S. fuel consumption. Brent crude edged up to 66.15 dollars a barrel, while West Texas Intermediate slipped slightly to 63.14 dollars. According to American Petroleum Institute figures, U.S. crude inventories rose by 1.52 million barrels last week. Gasoline stocks fell while distillate inventories recorded a modest increase. The rise in crude stocks aligns with the typical tapering of demand that occurs toward the close of the summer driving season, which spans from late May to early September. This inventory build, if confirmed by U.S. Energy Information Administration (EIA) data, would indicate a measurable cooling in refining activity, reflecting reduced consumer fuel demand.

Analysts polled by Reuters expected a modest draw of around 300,000 barrels, underscoring the contrast between market projections and the API’s reported build. The discrepancy suggests that actual consumption may be weakening faster than anticipated, implying a more pronounced seasonal slowdown rather than a temporary fluctuation. If EIA data aligns with the API’s findings, the signal would be a sustained shift toward lower utilization rates at U.S. refineries, driven by diminished transportation demand after the peak summer period.

Production Forecasts and Price Pressure

Longer-term market sentiment is being influenced by updated supply forecasts from both OPEC and the EIA. The EIA anticipates U.S. crude output to reach a record 13.41 million barrels per day in 2025 due to gains in well productivity. However, lower oil prices are expected to trigger a production decline in 2026. This projection shows a cause-effect link where price levels directly influence drilling activity and production decisions. OPEC, while maintaining its 2025 demand forecast, now sees global oil demand in 2026 rising by 1.38 million barrels per day, a 100,000 bpd increase from its prior outlook. The combination of record U.S. production in the short term and steady demand growth expectations places downward pressure on prices in the current environment, as supply growth risks outpacing demand in the near term.

Geopolitical developments also played a role in moderating price movement. The White House signaled that expectations for a swift Russia-Ukraine ceasefire are premature, reducing the likelihood of an immediate easing of sanctions on Russian crude exports. While ongoing sanctions have helped support prices by constraining supply, the market has begun to lower expectations of additional punitive measures. The planned meeting between U.S. President Donald Trump and Russian President Vladimir Putin in Alaska is unlikely to yield an immediate resolution, meaning geopolitical risk premiums may remain steady but not escalate significantly.

The near-term price trajectory will hinge on the EIA’s confirmation of U.S. inventory trends, with a larger-than-expected build reinforcing the view of slowing demand as the summer season ends. Concurrently, the interplay between high 2025 output levels and muted geopolitical shocks may keep prices within a narrow range, while anticipation of a 2026 supply adjustment could provide a longer-term stabilizing factor. The balance between these elements seasonal consumption shifts, production growth, and geopolitical uncertainty will shape oil market dynamics through the remainder of the year.

Source: Reuters

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Gerik

Economic

Shifting Growth Dynamics in the Global EV Market

Global sales of battery-electric vehicles and plug-in hybrids reached 1.6 million units in July, marking a 21% increase compared with the same month last year. This was a clear deceleration from June’s 25% rise and the slowest pace since January. The primary influence on this trend was the easing of Chinese plug-in hybrid momentum, which weighed on global averages given China’s role as the largest EV market, accounting for more than half of worldwide sales. The moderation in China’s growth coincided with a pause in certain government subsidy programs, which altered purchase timing and constrained immediate demand.

China’s EV market, which averaged 36% monthly growth in the first half of 2025, slowed to just 12% in July, with around one million vehicles sold. This steep drop aligned with the suspension of some 2025 subsidy schemes, reducing affordability incentives and cooling buyer urgency. The sequence suggests that changes in government support directly influence purchase behavior rather than merely coinciding with market fluctuations. The slowdown also showed in BYD’s performance, as the world’s largest EV maker recorded its third consecutive monthly drop in registrations, underscoring the link between domestic demand conditions and corporate sales momentum.

Europe’s Strong Performance and Regional Contrasts

In contrast, European EV sales surged by 48% to about 390,000 units, driven by incentive programs aimed at accelerating decarbonisation. The sharp rise in Europe indicates that policy-driven demand stimulation can produce immediate and measurable growth effects. North America posted a modest 10% increase to over 170,000 units, while the rest of the world experienced a 55% jump to more than 140,000 units, suggesting that emerging EV markets are entering a faster adoption phase. These regional variations imply that while the Chinese market wields considerable influence over global trends, other regions can partially counterbalance downturns when policy conditions are favorable.

Looking forward, Chinese sales are expected to rebound from August as fresh funds are released for subsidy programs, reinforcing the view that fiscal support has a strong causal effect on EV demand. Conversely, the U.S. market faces a potential headwind as a scheduled reduction in federal tax credits at the end of September is likely to dampen purchasing activity. This divergence in policy timing between regions is set to shape the next quarter’s global EV sales patterns, with Europe’s sustained incentives and emerging market momentum offering some buffer against potential slowdowns in major markets.

Source: Reuters

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Samantha Luan

Economic

Forex

Australia’s annual wage growth remained elevated last quarter, underscoring a tight labor market and persistently weak productivity — a key challenge for the Reserve Bank as it seeks to rein in cost pressures.The Wage Price Index advanced an annual 3.4% in the three months through June, compared with economists’ estimate of 3.3%, Australian Bureau of Statistics data showed Wednesday. On a quarterly basis, wages grew 0.8%, matching estimates. The report showed public sector wage growth was higher than the private sector.

On Tuesday, Governor Michele Bullock signaled a “couple more” interest-rate cuts will be required to achieve the RBA’s latest forecasts after the policy board eased as anticipated to bring its key rate to 3.6% — the lowest level since April 2023. Traders view the RBA’s September decision as a coin toss, with the fourth rate cut of the year seen as more likely to come in November.The RBA is closely monitoring the price-setting behavior of firms and the labor market, with employment data on Thursday expected to show the jobless rate edged down in July to 4.2%, from 4.3% in June.

The central bank on Tuesday predicted unemployment would hold at 4.3% over its forecast horizon while wages growth would ease to 3% in mid-2026.RBA officials have said in the past that wage growth of around 4% is consistent with the central bank meeting its 2-3% inflation target, as long as the economy’s productivity performance improves. Yet they’ve sounded increasingly pessimistic about a turnaround in recent times.

Bullock has said the board needs to see better productivity in order to be comfortable that wages can rise without rekindling inflationary pressures. The government will convene a three-day roundtable in Canberra next week to generate ideas to boost efficiency in the economy and Bullock is due to speak at the opening session.Wednesday’s data showed private sector annual wage growth was 3.4%, while the public sector climbed 3.7%.

Source: Bloomberg Europe

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MarketPulse by OANDA Group

Commodity

Forex

Political

Economic

US CPI Inflation Data

The US Consumer Price Inflation (CPI) for July came in mostly as expected. Headline inflation increased by 0.2% compared to last month and 2.7% compared to last year. Core inflation (which excludes food and energy) rose by 0.3% month-on-month and 3.1% year-on-year.Looking at the details, energy prices dropped by 1.1% from the previous month, while food prices stayed the same. For products most affected by tariffs, the impact seems mild for now. Core goods (excluding cars) increased by 0.2% in July, which is a slower rise compared to the 0.55% jump in June. This suggests that companies are currently absorbing most of the extra costs from tariffs.

Some specific changes: appliance prices surprisingly fell by 0.9%, clothing prices went up slightly by 0.1%, sporting goods increased by 0.4%, and furniture prices rose by 0.9%.It would appear that any inflationary impact expected from tariffs thus far are largely absorbed within US corporate profit margins.Also frontloading ahead of tariff deadlines may be keeping prices in check.The question going forward is now whether companies will continue to absorb increasing costs or will it be passed to consumers.The impact on gold was interesting with an initial move higher followed by fresh daily lows and a test of key support at 3334. Gold should in theory rise, given that the inflation print only helps a Fed rate cut in September.

President Trump Rules Out Tariffs on Gold Bars

Tariffs will not be placed on gold bars, according to a statement by Trump on Monday, ending uncertainty that had caused panic in the gold markets last week.Last Friday, gold futures prices hit a record high on reports of potential US tariffs on 1kg gold bars, which would have impacted Switzerland, a major gold exporter.Following Trump’s statement, US gold futures fell 2.4% to $3,407 per ounce, while spot gold dropped 1.2% to $3,357. The Swiss Association of Precious Metals Producers welcomed the news but called for a formal decision to ensure stability.A White House official said an executive order is being prepared to address misinformation about gold tariffs

Gold Prices Moving Forward

Looking at Gold over the medium-term and none of these events served as a catalyst for the precious metal. For now that 3500 handle seems to be unattainable as every bullish rally seems to be making a lower high the most recent of which occurred around 3407.The failure to gain acceptance above the 3400 handle does leave the precious vulnerable to further downside.

Technical Analysis – Gold (XAU/USD)

From a technical standpoint, Gold on a two-hour timeframe is also flashing bearish signs.There was a short-term ascending trendline which has been broken, with resistance being provided by the 100-day MA.If the 100-day MA holds firm further downside could materialize. Immediate support rests around the 3330 handle with a break below opening up a retest of the swing high at 3314 and then of course the 3300.A move higher has significant hurdles to clear in the short-term. First we have the 100-day MA at 3361 before the 50-day MA at 3373 and then of course the psychological 3400 handle.

Gold (XAU/USD) Daily Chart, August 12, 2025

Source: TradingView

Source: OANDA

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Kevin Morgan

Key points:

● EIA forecasts decline in US crude output in 2026

● Brent prices to average $51 per barrel in 2026

● US distillate inventories to hit lowest year-end level since 2000

U.S. crude production will hit a record 13.41 million barrels per day in 2025 due to increases in well productivity, though lower oil prices will prompt a fall in output in 2026, the Energy Information Administration forecasted on Tuesday in a monthly report.

The decline in 2026 production to 13.28 million bpd would be the first drop in output since 2021 for the world's largest producer, the EIA data showed. Prices for the international benchmark Brentwill average $51 per barrel next year, down from the EIA's previous forecast of $58 per barrel, after the Organization of the Petroleum Exporting Countries and its members decided to accelerate the pace of production increases.

"Low oil prices in early 2026 will lead to a reduction in supply by both OPEC+ and some non-OPEC producers, which we expect will help moderate inventory builds later in 2026," the EIA said.

In last month's report, the EIA had projected U.S. crude output at 13.37 million bpd in both 2025 and 2026.

TheUnited Statesproduced 13.21 million bpd in 2024. U.S. producers this year have had to navigate PresidentDonald Trump'son-again, off-againtariffsthat have sparked economic uncertainty, rising supply quotas from OPEC+, and ongoing conflicts in theMiddle Eastandin Ukraine.

Lower crude prices are expected to push down retail prices for petroleum products, the EIA said, adding it expects retail gasoline prices in the U.S. to average less than $2.90 per gallon next year, about 20 cents per gallon less than this year.

U.S. distillate fuel inventories will end 2025 at the lowest end-of-year level since 2000, after decreasing 14% over the course of the year due to increased exports and demand, the EIA said. Lower U.S. refinery capacity and continued strong export demand will keep inventory levels lower, with distillate inventories remaining relatively flat in 2026, the agency added.

U.S. oil demand will increase to 20.4 million bpd in 2025, in line with previous forecasts, the EIA said. In 2026, oil demand will rise to 20.5 million bpd, versus a previous estimate of 20.4 million bpd.