The U.S. dollar fell ahead of the release of the Federal Reserve’s July monetary policy meeting minutes and Chairman Jerome Powell’s upcoming speech at Jackson Hole near the end of the week.

Dollar Downtrend Begins To Gain Momentum

The minutes, which will be released on Wednesday, and Jerome Powell’s speech on Friday are likely to be the main drivers of the week’s currency movements, with traders expecting a negative tone to emerge.

According to market analysts, the signals may be subtle, but the downward momentum appears to be starting to consolidate. Likewise, the DXY dollar index appears to be crossing the same levels seen at the beginning of August. This week’s events, such as the July FOMC minutes, revised payrolls, and Fed speakers, could add to the dollar’s losses. Market investors are most likely eager to see how much further the dollar can fall next month.

The Fed has kept its benchmark overnight rate between 5.25% and 5.50% since July, after it had risen 525 basis points since 2022.

Traders have fully priced in a 25 basis point rate cut by the Fed in September, with a 24.5% chance of a move of almost 50 basis points.

Pound Hits One-Month Highs

Turning to Europe, GBP/USD rose nearly 0.2% to 1.2963, reaching a one-month high as the pound benefits from a weaker dollar.

According to market analysts, GBP/USD looks set to revalidate its high for the year at 1.3045, as broad dollar weakness dominated global currency markets. A dovish stance from the Bank of England could cap the pound’s gains. Additionally, the Bank’s Governor, Andrew Bailey, will have the opportunity to speak at Jackson Hole on Friday this week.

However, analysts may be underestimating the demand for sterling coming from M&A activity. In 2024, the UK is the hub region for deals worth close to $200 billion.

EUR/USD rose by as much as 0.1% to 1.1037, approaching the more than seven-month high reached the previous week.

Yen Rises

In Asia, USD/JPY lost 1% to 146.05 on the back of a broad-based weakening of the dollar and the likelihood of further political divergence between the U.S. and Japan.

Bank of Japan Governor Kazuo Ueda is scheduled to address Parliament on Friday, where he is expected to discuss the central bank’s decision last month to raise interest rates.

USD/CNY lost about 0.3% to 7.1408, and the yuan headed for its biggest gain in two weeks, taking advantage of a broad-based sell-off in the dollar as investors bet on a U.S. Fed rate cut.