Dollar weakens amid rate cut expectations

July 2025 marked the sharpest strengthening of the dollar in the past three years, with the DXY index rising by 3.2%. However, in early August, the U.S. currency has once again begun to show signs of weakening. Markets are now pricing in a potential rate cut by the Federal Reserve in September, with the probability estimated at 93%.

Pressure on the dollar is being driven by several factors: political interference in the Federal Reserve’s operations, slower job growth, and growing expectations of a shift toward a more accommodative monetary policy. As a result, the dollar index has declined to 98.1, nearly 10% below its level at the start of the year.

Currency markets reassess risks

As yields on dollar-denominated assets decline, currency markets are showing increased interest in alternative instruments and currencies. Some have already benefited from the shift in investor sentiment:

• The South African rand has strengthened to 17.68 per dollar, primarily due to rising gold prices and strong commodity export dynamics.
• The British pound has gained ground, supported by a hawkish rate cut from the Bank of England that boosted investor demand despite dollar weakness.
• The euro remains relatively stable despite ongoing economic uncertainty across the eurozone.

This shift in demand suggests that markets are entering a new phase of risk reassessment. Investors are gravitating toward assets tied to commodity prices or perceived as less vulnerable to political pressure on central banks.

Key factors affecting the dollar in August

The downward pressure on the U.S. currency is driven by a combination of economic and political developments that have intensified in recent weeks. Together, they create a sustained bearish trend, particularly in an environment of macroeconomic uncertainty.

• Fed messaging and the likelihood of a rate cut in September;
• Political interference in central bank appointments;
• Weak labor market data;
• Rising demand for commodity-linked currencies and gold;
• Reallocation of global capital toward alternative assets.

This mix of conditions is placing steady pressure on the dollar, a trend that could persist through the end of the quarter.

What comes next

The outlook remains uncertain, and August may prove to be a pivotal month for the reevaluation of currency and macroeconomic expectations. Financial analysts recommend:

• closely monitoring upcoming Fed meetings and macro data;
• reassessing currency exposure in investment portfolios;
• using volatility as an opportunity for short-term tactical moves.

If the expected rate cut in the U.S. is confirmed, the dollar is likely to continue weakening. Otherwise, a short-term rebound is possible, but a full return to previous strength appears unlikely