BLOOMBERG DOLLAR SPOT INDEX RISES 0.5%, UP MOST SINCE JULY 30

BLOOMBERG DOLLAR SPOT INDEX RISES 0.5%, UP MOST SINCE JULY 30

The Bloomberg Dollar Spot Index (BDSI) has surged by 0.5% to its highest level since July 30, driven by market sentiment that Federal Reserve Chair Jerome Powell will not adopt an overly dovish stance on interest-rate cuts. Traders are increasingly betting that the Fed will not be pressured by President Donald Trump to deliver deep rate cuts, despite growing pressure from the White House [1].

So-called one-month risk reversals for the BDSI jumped to their highest level since July 31, just before Powell's highly anticipated speech at the US central bank's annual Jackson Hole retreat. The US dollar traded at its strongest level since August 5, poised to end the week up 0.7% [1].

Sonja Marten, head of FX and monetary policy research at DZ Bank AG, stated, "A 25 basis-point cut next September — that door’s going to be open. But I don’t think he’s going to be more aggressive than that." Marten indicated that Powell would likely resist pressure to adopt more aggressive rate cuts, emphasizing that he would make it clear that he will not be pressured by the White House to take actions that might not be justified [1].

Despite the increasing speculation of significant rate cuts, recent minutes from the Federal Open Market Committee (FOMC) meeting indicated that policymakers are more focused on stubbornly high inflation, rather than the labor market. This shift in focus has led traders to pare back their bets on rate cuts, with expectations now centered around 47 basis points of easing by the end of the year, down from 63 basis points just over a week ago [1].

The upward correction in the dollar has raised the possibility of continued appreciation, particularly against the euro. DZ Bank’s Marten noted that the dollar's slide to its weakest level in nearly four years versus the euro last month has left the market with an overhang of long euro-dollar positions [1].

Nick Rees, head of macro research at Monex Europe, expects the tone of Powell's speech to be hawkish, prompting further dollar gains into the end of the week. However, he cautioned that any undue focus on comments suggesting a September rate cut could initially trigger selling in the dollar, although this would likely be short-lived [1].

References:
[1] https://www.bloomberg.com/news/articles/2025-08-22/dollar-options-signal-strength-on-bets-powell-won-t-tilt-dovish