US Dollar Steadies Ahead of Diplomatic and Economic Showdowns

The U.S. Dollar Index (DXY) remained stable around 97.85 on Monday, as markets adopted a cautious stance ahead of two key events: a meeting between President Donald Trump and President Volodymyr Zelenskiy, and the Federal Reserve's annual Jackson Hole symposium.

The meeting between President Trump and Ukrainian leader Zelenskiy is a focal point for traders. Following a recent meeting with Russian President Vladimir Putin, Trump signaled he would push Zelenskiy for a rapid peace deal that could involve Ukraine giving up territory. Meanwhile, the upcoming Jackson Hole symposium is generating significant attention, with the Fed under political pressure from the Trump administration to implement aggressive rate cuts. This event has a history of shaping long-term monetary policy expectations, and the Fed's stance will be closely watched.

Recent U.S. economic reports have provided a mixed picture. Retail sales in July increased by 0.5% month-over-month, aligning with market expectations and indicating resilient consumer spending. However, consumer sentiment has softened, with the University of Michigan's index falling to 58.6 in August. Inflation expectations have also risen, with the one-year outlook climbing to 4.9% and the five-year forecast increasing to 3.9%. These mixed signals have kept the possibility of a September Fed rate cut alive.

In other parts of the world, a weakening trend has emerged. China's retail sales grew at their slowest rate of the year at 3.7% in July, and industrial production also grew less than anticipated. The Japanese economy, however, expanded faster than expected in the second quarter, providing support for the Bank of Japan to consider raising rates again this year. The Australian and New Zealand dollars face potential downside risks this week, particularly if the Fed at Jackson Hole does not indicate a clear path of aggressive easing.