The US Dollar (USD) is wrapping up the week with mixed results, showing some strength overall. However, the DXY trend indicates ongoing softness, and the sentiment remains negative. Today, there are no US data reports, so focus is shifting to next week’s inflation reports, which may show a rise in year-on-year CPI. Persistent inflation usually makes it less likely for the Federal Reserve to adopt a less strict policy and could boost the USD, but this might not happen next week.

Possible Changes in Fed Leadership

Recent reports suggest that Governor Waller is the top candidate to replace Chair Powell. Additionally, the White House is looking to nominate CEA Chair Miran to the Fed board, taking over Governor Kugler’s term, which came as a surprise. Miran’s potential nomination could lead to stronger support for lower interest rates, impacting market expectations for a rate cut in September. This scenario might result in challenges for the USD due to lower short-term rates and a steeper yield curve. Currently, there are no US data reports. However, St. Louis Fed President Musalem will speak at 10:20 ET. As a relatively hawkish member of the FOMC, his comments will be crucial for insights on future policy. The US Dollar is having a tough time, even with some small daily gains. The broader DXY trend has been weak for most of this year, recently testing support around the 102 level after declining from earlier highs. This reinforces our negative outlook on the dollar in the coming weeks.

Market Focus and Strategy

Next week’s inflation data is in the spotlight, expected to show a slight year-on-year increase. Unlike before, a high CPI print may not boost the dollar since the market is currently more focused on potential changes in Fed leadership. After seeing core inflation stick around 3.2% in the second quarter of 2025, the market’s attention has shifted from the data to the Fed’s response. The real issue affecting sentiment is the likelihood of a more lenient Federal Reserve board. The possibility of Governor Waller replacing Chair Powell, along with the nomination of CEA Chair Miran, suggests a strong shift toward easing monetary policy. Miran’s appointment would significantly raise the chances of a rate cut as early as September, a move the market believes has over a 60% likelihood. Considering this outlook, it’s wise to explore strategies that benefit from a weaker dollar and lower short-term interest rates. This could include buying put options on the USD through ETFs like UUP, or purchasing call options on currencies like the Euro. Traders may also consider interest rate derivatives that gain from a steeper yield curve, anticipating the Fed will reduce short-term rates. In the short term, we will pay close attention to St. Louis Fed President Musalem’s speech, as he typically holds a hawkish view. Looking back to the 2023-2024 period, the market often adjusted its expectations based on personnel changes well before official announcements. Any dollar strength following his remarks could provide a better opportunity to position for the expected downward trend. Create your live VT Markets account and start trading now.

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