US Dollar Soft Under Pressure from Various Negative Fundamentals

The US dollar gained against its Australian and Canadian counterparts but otherwise was rather soft today. There were plenty of reasons for the dollar’s weakness: the outlook for interest rate cuts, escalation of the US-China trade war, and poor US housing data.
Market participants were waiting impatiently for the speech of Federal Reserve Chairman Jerome Powell at the Jackson Hole Symposium today, but it turned out to be a disappointment, not giving much in terms of new information and hints about Fed’s plans. On one hand, Powell did not promise additional easing, signaling that policymakers are content with waiting before making the next step. On the other hand, he did not use the language of the recent Fed minutes about the latest rate cut being just “mid-cycle adjustment”, giving rise to speculations that a September cut remains in the cards. In fact, the CME FedWatch page now shows a 100% probability of a September cut and almost 90% probability of another reduction by the end of the year.
Talking about interest rate cuts, St. Louis Fed President James Bullard said today that he favors an idea of an insurance rate cut. He said:

There’s some downside risk, and I think you’d like to take out some insurance against that downside risk and I’d like to take out more insurance. We can take the insurance back next year if it turns out that this is all going to blow over.

In the meantime, China announced new tariffs on US goods in response to the US plans to impose new levies on Chinese goods. US President Donald Trump responded with threats of retaliation, tweeting:

Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing your companies home and making your products in the USA. I will be responding to China’s tariffs this afternoon.

As for US data, new home sales dropped to a seasonally adjusted annual rate of 635,000 in July from 728,000 in June. The actual value was lower than the forecast 645,000.
EUR/USD surged from 1.1080 to 1.1140 as of 17:22 GMT today. GBP/USD edged up from 1.2249 to 1.2274, bouncing from the session low of 1.2194. USD/JPY sank from 106.43 to 105.34.

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