Dollar falls modestly before Jackson Hole; euro gains momentum

The U.S. dollar edged lower Tuesday, giving back early gains as caution prevailed following the White House summit on Ukraine.

At 04:40 ET (08:40 GMT), the Dollar Index, which measures the greenback against six major peers, slipped 0.1% to 97.920, after posting modest overnight gains.

Dollar trades in narrow range

U.S. President Donald Trump assured President Volodymyr Zelensky on Monday that Washington would help safeguard Ukraine’s security in any deal aimed at ending the war with Russia.

While this was viewed positively, uncertainty remains high, particularly as no ceasefire has been reached and Ukraine’s air force reported that Russia launched 270 drones and 10 missiles overnight in one of its largest offensives this month.

The biggest obstacle continues to be the territory Russia has seized, which Ukraine insists must be returned.

“Although the path to peace in Ukraine appears somewhat clearer after last Friday’s and Monday’s summits, markets remain cautious. This is reasonable, as the most difficult negotiations – especially over land disputes – are still to come,” analysts at ING noted.

Beyond geopolitics, traders are focused on the Federal Reserve’s Jackson Hole symposium later this week, with Chair Jerome Powell scheduled to deliver his outlook on Friday.
Ahead of this, Fed Governor Michelle Bowman, one of two dissenters who supported a rate cut at last month’s meeting, is set to speak today.

Markets are currently pricing in an 83% probability of a quarter-point rate cut at the Fed’s September policy meeting.

“We expect the dollar to soften as we approach tomorrow’s FOMC minutes – the risk is more than two members signalling openness to cuts – and Jackson Hole,” ING added.

Euro strengthens after peace discussions

In Europe, EUR/USD rose 0.1% to 1.1677, with the common currency supported by the meeting of European leaders in Washington to advance Ukraine peace talks.
“We see potential upside in EUR/USD for the rest of the week. A move back above 1.1700 remains possible before Friday,” ING said.

That said, if a deal is reached that shifts more responsibility onto European nations, relief rallies could trigger capital outflows from the euro and sterling.

GBP/USD climbed 0.1% to 1.3520, ahead of key inflation data due Wednesday.
“We anticipate both headline and services inflation accelerating, to 3.7% and 4.8% respectively,” ING stated. “This should reinforce the market’s recent hawkish adjustment in the Sonia curve. Bets on another rate cut before year-end briefly fell below 50% yesterday – now standing at 14bp.”

Muted trading in Asia

Elsewhere, USD/JPY eased 0.1% to 147.67, USD/CNY edged down to 7.18283, and AUD/USD slipped 0.1% to 0.6485 in subdued Asian trading.

Investors remain cautious, balancing geopolitical risks tied to Russia-Ukraine developments with expectations for guidance from the Federal Reserve’s Jackson Hole symposium.