Dollar Comes Under Pressure as Jackson Hole Takes Centre Stage
Summary
The dollar came under pressure last week as concerns over US government debt markets added to uncertainty around the Federal Reserve outlook
Sterling recorded a fourth consecutive weekly gain, supported by dollar weakness and signs that the UK economy remains resilient despite a cooling labour market
UK inflation rose to 2.9% in July as household energy bills increased, although services inflation eased
US growth and inflation data on Wednesday will set the stage for Federal Reserve Chair Kevin Warsh’s Jackson Hole address on Friday
The dollar had a difficult end to last week, falling to a three-month low against the euro while sterling extended its recent advance. One of the main catalysts came from the US Treasury, which doubled planned buybacks of longer-dated government debt after a sharp rise in borrowing costs. The announcement initially pulled bond yields lower but also raised fresh questions over the US fiscal position, leaving the dollar under pressure as markets headed into the new week.
That pressure comes at an important point for Federal Reserve policy. Minutes from the Fed’s July meeting showed that the Committee voted 9–3 to leave rates unchanged, with three members preferring an immediate quarter-point increase. Most policymakers expected inflation to ease over the remainder of the year, but many also warned that price pressures could prove more persistent than forecast. The meeting took place before the latest US employment, inflation and retail sales figures, which subsequently caused markets to scale back expectations for a September increase.
Sterling has been one of the beneficiaries, completing a fourth consecutive weekly gain and moving close to its strongest level against the dollar since February. The UK data themselves were mixed. Unemployment remained at 4.9% in the second quarter while vacancies continued to fall, reinforcing evidence that the labour market is cooling. Inflation, meanwhile, rose from 2.6% to 2.9% in July after an increase in regulated household energy bills, although services inflation eased from 3.6% to 3.4%.
That combination leaves the Bank of England with the same difficult balance it has faced for much of the year. Headline inflation remains above target, but underlying price pressures are showing some signs of easing as the labour market weakens. Retail sales also fell in July following a strong June, while separate surveys at the end of the week showed UK services activity at a six-month high and consumer confidence at its strongest in two years. The Bank voted 6–3 to keep rates unchanged in July, and economists surveyed by Reuters last week overwhelmingly expected no further change during 2026.
The euro has also benefited from the weaker dollar, while its domestic data have remained relatively firm. Final figures confirmed euro area inflation at 2.9% in July, slightly higher than in June, and business activity accelerated to its fastest pace since November according to the latest purchasing managers’ survey. The European Central Bank raised rates in June before holding them steady in July and continues to stress that future decisions will be made meeting by meeting as it assesses inflation and the impact of higher energy costs.
Attention now shifts firmly back to the United States. Wednesday brings the second estimate of second-quarter growth alongside July personal income and spending figures, including the Federal Reserve’s preferred PCE measure of inflation. The Jackson Hole Economic Policy Symposium begins the following day, before Fed Chair Kevin Warsh delivers the keynote address on Friday. With markets having reduced expectations for a September rate increase, both the inflation data and Warsh’s remarks have the potential to reshape the interest-rate outlook heading into the Fed’s next meeting.
Events to Watch This Week:
Tuesday 25 August: US consumer confidence; US new home sales
Wednesday 26 August: US Q2 GDP second estimate; July personal income and spending, including PCE inflation; US durable goods orders
Thursday 27 August: Jackson Hole Economic Policy Symposium begins
Friday 28 August: Federal Reserve Chair Kevin Warsh delivers the keynote address at Jackson Hole
Wednesday’s US data and Friday’s Jackson Hole address are the key points of risk for currency markets this week. With sterling and the euro both having gained ground against a softer dollar, any change in expectations for Federal Reserve policy could have an immediate bearing on businesses with upcoming GBP, USD or EUR requirements.
Speak to the Orbis dealing team ahead of this week’s major releases to discuss your upcoming transfers and the risk-management options available.
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