Dollar Falls to Three-Month Low Amid Fiscal Concerns

The US dollar declined to a three-month low last week, falling by about 0.8% to 98.80 according to the USD index (DXY). This drop is largely attributed to concerns over fiscal sustainability and the Treasury's decision to expand buybacks of long-dated bonds.

Markets will be closely watching Fed Chair Kevin Warsh's address at Jackson Hole on Friday, where he is expected to provide guidance on how the Fed plans to manage persistent inflation. While some investors see this as a sign of softer demand and liquidity conditions at the long end, expectations for explicit forward guidance should remain modest.

Meanwhile, the euro area's economic growth continues to broaden beyond domestic demand, with flash PMIs showing business activity growing at its fastest pace since November last year. This has led analysts to continue expecting the ECB to hike interest rates once more this year.