U.S. Dollar Holds Gains Amid Uncertainty Over Fed Rate Cuts and Economic Data

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Summary:

The U.S. dollar remained steady on Thursday, sustaining overnight gains as traders reassess expectations for Federal Reserve rate cuts. Market participants await key economic data, including inflation and GDP figures...

Dollar Stability Reflects Caution on Fed Easing

Following the Fed’s interest rate cut last week, the U.S. dollar has strengthened, reflecting market caution amid uncertainty about future monetary policy. Traders had initially priced in 43 basis points of easing across the remaining two Fed meetings this year. However, comments from Federal Reserve Chair Jerome Powell and other officials indicate that the timing and magnitude of further cuts will depend heavily on upcoming inflation and labor data. San Francisco Fed President Mary Daly emphasized that while additional easing may be required, the precise schedule remains unclear, reinforcing a cautious, data-driven approach.

In early Asian trading, the euro remained largely unchanged at $1.17425 after a 0.6% drop in the previous session. Sterling also stabilized at $1.3451 following similar losses. The dollar index, which measures the U.S. currency against a basket of six major currencies, hovered near 97.813, close to a three-week high, and is poised to record a modest monthly gain. The Japanese yen recovered slightly to 148.62 per dollar after reaching a three-week low, with investors also monitoring political developments, including the selection of Japan’s next prime minister.

Impact of Tariffs and Inflation Uncertainty

Investors are closely monitoring the effects of U.S. tariffs imposed under President Donald Trump, which have disrupted global trade and added uncertainty to price dynamics. Laura Cooper, a global investment strategist at Nuveen, noted that tariff-related price pressures remain unpredictable, making the path for Fed rate cuts uncertain. She anticipates that Personal Consumption Expenditures inflation could peak near 3.2% later this year, suggesting that inflation may remain above target for longer and supporting the Fed’s patient stance.

Elsewhere in Asia, currency movements reflected central bank expectations. The Bank of Japan’s July policy minutes indicated that some board members are considering future rate hikes, with the next policy meeting scheduled for October 29-30 likely to provide updated growth and inflation forecasts. The New Zealand dollar rose modestly to $0.5813, while the Australian dollar traded at $0.65905 following leadership changes at the Swedish central bank, highlighting ongoing market sensitivity to global monetary developments.

The U.S. dollar’s recent strength underscores the market’s cautious approach amid uncertainty surrounding Fed policy, inflation trends, and the economic impact of tariffs. Investors remain attentive to key U.S. data releases, including PCE inflation and GDP estimates, which will likely shape expectations for future rate adjustments and guide currency market dynamics in the coming weeks.

Source: Reuters

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Samantha Luan

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Soybeans at a processing and crushing facility in Rosario, Santa Fe province, Argentina. Photographer: Sebastian Lopez Brach/Bloomberg

China ramped up buying of soybeans from Argentina this week after the South American country suspended export taxes, sidelining US farmers who usually dominate the trade at this point of the year.Importers in China have expanded purchases to at least 35 cargoes, up from an earlier tally of 20 shipments, according to people familiar with the matter, who asked not to be identified as they’re not authorized to speak to the media. Most of the soybeans are slated to be loaded in November, they added.

China has shifted the focus of its agriculture purchases in recent years, and the Asian nation now relies on Brazil for most of its soybeans, which are typically crushed into cooking oil and animal feed. However, Chinese buyers usually snap up US supplies from October to February following the American harvest, while the new Brazilian crop is in the process of growing.But as of Sept. 11 — almost two weeks into the new marketing season for the US — China hadn’t booked a single American cargo. That’s the first time in records going back to 1999, according to US Department of Agriculture data.

The Argentine cargoes are equivalent to more than 2.27 million tons. The most soybeans China has imported from the South American country on a monthly basis were about 2.23 million tons in July 2015. Still, there’s no guarantee all booked shipments will be delivered.Some of the cargoes have also been booked for shipment next year from the new Argentinian crop, people with knowledge of the matter said.The buying spree, prompted by a sudden suspension by Buenos Aires of export taxes to key crops including soybeans, has flooded Argentina’s currency market with dollars. That’s led to calls for the government to start rebuilding its stock of hard-currency reserves.

Source: Yahoo Finance

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Economic

Service-Sector Prices Reflect Strong Domestic and Tourism Demand

The services producer price index, which tracks the prices that companies charge each other for services, rose 2.7% in August, accelerating slightly from a revised 2.6% gain in July. The hospitality sector was a key driver of the rise, with hotel prices increasing 7.6% year-on-year, up from 5.4% in the previous month. This growth reflects robust demand from inbound tourism, as Japan has seen a steady recovery in visitor numbers following the easing of COVID-19 travel restrictions. Other service sectors also contributed to the overall price increase, highlighting broad-based inflationary pressures in business-to-business services.

Rising labor costs remain a central factor behind the increase in service-sector prices. Companies across sectors are facing higher wage demands amid tight labor markets, leading to greater pass-through into the prices of services. The SPPI data suggests that these cost pressures are becoming more entrenched, providing the Bank of Japan with confirmation that inflation may remain closer to the 2% target in a sustainable manner. Analysts view this as an indicator that underlying inflation in the Japanese economy is resilient, not just a temporary phenomenon in consumer prices.

Monetary Policy Implications

The Bank of Japan concluded its decade-long ultra-loose stimulus program last year, marking a shift toward normalization. In January 2025, the BOJ raised short-term interest rates to 0.5%, citing confidence that Japan was approaching a sustainable 2% inflation target. With consumer inflation exceeding 2% for more than three years, and service-sector prices continuing to rise, the central bank has indicated that it is prepared to continue incremental rate hikes if the economy maintains moderate growth.

The SPPI’s acceleration in August reinforces the central bank’s current policy stance, suggesting that inflation pressures are being supported by structural factors, including wage growth and recovering demand in key service industries such as tourism, hospitality, and business services. This provides the BOJ with greater flexibility to tighten monetary conditions gradually, without undermining economic recovery.

Outlook for Inflation and the Economy

Looking ahead, economists expect service-sector prices to remain elevated in the near term, particularly as inbound tourism and domestic consumption continue to strengthen. Sustained wage growth, combined with higher demand for services, could help keep inflation near or slightly above the 2% target over the next several months. The BOJ’s careful monitoring of both consumer and producer prices will be critical in determining the pace of further rate hikes, ensuring that monetary policy supports durable price stability while avoiding unnecessary strain on economic growth.

In conclusion, the August SPPI data indicates that Japan’s service-sector inflation is accelerating in line with the central bank’s expectations. Rising labor costs, coupled with robust demand in tourism and other service industries, are likely to sustain inflation around the 2% target, reinforcing the Bank of Japan’s commitment to gradual policy normalization and measured interest rate increases.

Source: Reuters

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China's top flash memory chipmaker Yangtze Memory Technologies Co (YMTC) is planning to expand into manufacturing DRAM chips including advanced versions that are used to make artificial intelligence chipsets, three people with knowledge of the matter said.The move by the state-backed chipmaker underscores China's growing urgency to boost its capability to manufacture advanced chips after the U.S. expanded export controls in December to restrict Beijing's access to high-bandwidth memory (HBM), a specialised form of DRAM used to make AI chipsets.

The restriction has since made the availability of HBM chips more pressing matter for China's vast AI chip industry where tech giants such as Huawei and ByteDance are developing their own AI chips, industry sources and analysts have said.YMTC is developing an advanced chip packaging technology known as through-silicon via (TSV), which is used to stack dynamic random-access memory (DRAM) to produce HBM chips, two of the people said.

They declined to be named because the information is not public.

HBM chips are mainly produced by U.S.-based Micron, South Korea's SK Hynix and Samsung Electronics and used to make AI chipsets that the likes of Nvidia and AMD sell.

In China, YMTC's main rival CXMT is already developing HBM chips.

YMTC is also considering allocating part of a new facility it is building in Wuhan to producing DRAM chips, one of the people said.Earlier this month, YMTC established a new entity to build a third chip factory in Wuhan, with a registered capital base of 20.7 billion yuan ($2.9 billion), according to data from corporate registry data provider Qichacha.

YMTC didn't respond to a request for comment.

Reuters was not able to establish what the new fab’s planned monthly capacity would be or how much of it would be allocated for DRAM production.YMTC's two existing fabs in Wuhan, which have been focusing on NAND chips, are capable of producing 160,000 12-inch wafers per month as of end-2024 and are expected to expand its capacity by 65,000 wafers this year, according to a research note by Morgan Stanley.YMTC, which was added to the U.S. Entity list in 2022, has played a crucial role in China’s drive for self-sufficiency in flash memory chips, for which the country had largely relied on imports from South Korea, Japan, and the U.S.

The company is owned by a namesake state-backed holding entity.

Source: Yahoo Finance

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China’s Growing Dominance in the Region

According to the report, China has established a strong foothold across Southeast Asia through consistent trade, investment, and diplomatic engagement. China now accounts for 20% of regional exports and supplies 26% of imports, compared with 16% for the U.S. The influence gap is especially pronounced in Cambodia, Laos, and Myanmar, where China’s role exceeds U.S. influence by 60% to 150%. Beijing’s approach contrasts with the “patchy” U.S. diplomacy under Trump, which has led to the perception of America as a peripheral actor outside its traditional partners.

Tariffs, visa restrictions, and an 83% reduction in foreign aid have been cited as key drivers of declining U.S. influence. Southeast Asian nations experienced significant economic pressure when U.S. tariffs were imposed in April, with some countries still facing high duties even after revisions in July. Additionally, cuts to USAID and media agencies like the US Agency for Global Media have reduced America’s soft power, limiting its cultural and informational reach in the region.

Regional Reactions and Strategic Diversification

Despite China’s ascendancy, Southeast Asian countries are actively diversifying their international relationships to avoid over-reliance on a single power and to mitigate geopolitical risk. U.S. influence remains strongest in traditional defense partners such as the Philippines and Singapore, but across mainland Southeast Asia, Washington is increasingly viewed as a secondary player.

The report highlights how China’s strategic use of trade and diplomacy is reshaping the balance of power in Southeast Asia. Lowy Institute deputy research director Susannah Patton emphasized that while China leads by a clear margin, the networked relationships among Southeast Asian states prevent Beijing from establishing uncontested dominance. As Trump prepares to attend the ASEAN summit in Malaysia, these dynamics underscore the challenges facing U.S. policymakers in maintaining influence amid China’s growing regional presence.

Source: Bloomberg

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Equity Markets Take a Breather

After a period of strong gains, the MSCI Asia-Pacific index outside Japan slipped 0.2%, reflecting a pause in the recent rally, which had seen a 5.5% rise for the month and 9% for the quarter. Japan’s Nikkei rose modestly by 0.1%, following a 7% monthly and 13% quarterly gain, while Chinese blue chips remained flat and Hong Kong’s Hang Seng fell 0.2%. Analysts noted that fund rebalancing for monthly or quarterly cycles could lead to selling in U.S. and Japanese equities, with potential buying pressure directed toward German and Australian markets.

The Japanese yen weakened sharply, slipping 0.1% to 148.77 against the dollar and testing over one-year lows versus the euro at 174.78 and reaching a record trough against the Swiss franc at 187.30. The Swiss National Bank is anticipated to maintain its policy rate at zero. U.S. Treasury yields remained largely steady, with the 10-year note at 4.1408%, as the market absorbed significant supply from corporate and government auctions, including $44 billion in seven-year notes.

Commodities and Oil Prices

Oil prices moderated, with U.S. crude falling 0.4% to $64.73 per barrel and Brent declining 0.3% to $69.11, after overnight gains driven by U.S. inventory draws and geopolitical concerns in Iraq, Venezuela, and Russia. Brent has remained supported within a $65‑70 range despite forecasts of oversupply in late 2025 and early 2026. Spot gold prices held steady at $3,739 an ounce amid a stronger U.S. dollar.

Futures on the S&P 500 and Nasdaq inched up 0.1%, reflecting cautious positioning ahead of comments from Federal Reserve officials and upcoming economic data, including Friday’s Personal Consumption Expenditures report and the final GDP estimate for the second quarter. While markets price in a high probability of a Fed rate cut in October, expectations for the total easing have moderated. Overall, investors are balancing strong recent equity gains with uncertainty over monetary policy, currency movements, and commodity prices as the month and quarter close.

Source: Reuters

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Economic

Expansion of Section 232 Investigations

On September 2, 2025, the U.S. Department of Commerce launched investigations into imports of personal protective equipment, medical consumables, medical devices, robotics, and industrial machinery. Items under review include surgical masks, N95 respirators, gloves, syringes, wheelchairs, hospital beds, pacemakers, insulin pumps, and heart valves. The administration is evaluating whether reliance on foreign production poses a national security risk, with the potential outcome of sector-specific tariffs to incentivize domestic manufacturing.

The probes could increase costs across multiple sectors. Hospitals and patients may face higher expenses for essential medical devices and protective gear, potentially reducing access to critical care. Scott Whitaker, CEO of AdvaMed, highlighted that any added costs would largely affect taxpayer-funded programs like Medicare, Medicaid, and the Veterans Health Administration. Rick Pollack of the American Hospital Association warned that supply disruptions could compromise the quality of patient care, given the high reliance on international suppliers.

The industrial sector, particularly the U.S. auto industry, could also be heavily affected. Industrial robots, essential for manufacturing, are mostly imported, and the auto industry accounted for significant demand with 13,747 robot installations last year. Any new tariffs on machinery could disrupt production and raise costs for domestic manufacturers.

Broader Trade and Geopolitical Context

These investigations build on previous Section 232 tariffs imposed on automobiles, copper, steel, and aluminum. They reflect Washington’s growing concern over dependence on overseas supply chains, particularly from countries like Mexico and China, which accounted for over 35% of U.S. machinery imports in 2023. Ongoing probes into pharmaceuticals, semiconductors, and related chipmaking components further signal a broader strategy to secure critical supply chains against foreign vulnerabilities.

The administration is soliciting input from companies on projected domestic capacity, foreign subsidies, and “predatory trade practices” to assess the feasibility of domestic production as an alternative. Any resulting tariffs would be layered on top of existing country-specific levies, though exemptions negotiated with partners like the European Union and Japan may mitigate some impacts.

While the expanded Section 232 investigations aim to strengthen domestic industrial and medical supply capabilities, they carry significant trade-offs. Higher tariffs could disrupt access to medical equipment, raise healthcare costs, and complicate manufacturing for industries dependent on imported machinery and robotics. The coming months will determine the extent to which these measures reshape U.S. import patterns and the resilience of critical supply chains.