Dollar Under Pressure as Markets Hold

Markets respond to weekend diplomacy with a mild risk on tone as policy signals loom from Jackson Hole and Fed minutes.

FX Markets Embrace Calm as Dollar Softens

Global markets treated Friday's Putin Trump meeting with caution, but not panic. The Western press framed the encounter as a setback, yet currency and equity markets moved on with little upheaval. EUR/CHF held gains from late last week, Central and Eastern European currencies remained bid, and energy prices drifted lower. Equity futures in Europe and the U.S. traded modestly higher as Asian shares posted gains overnight.

Talk of a NATO-like security guarantee for Ukraine, raised by US special envoy Steve Witkoff, offered a rare bright spot for traders. If clarified, such a guarantee could eventually ease security concerns in Europe and support risk appetite. Traders will also watch the Fed, with minutes from the July meeting due on Wednesday and Powell's Jackson Hole appearance on Friday likely to shape expectations for a September cut. Waller's remarks on payments systems at a blockchain conference may sidestep the economy altogether.

Overall, a benign global backdrop supports a softer dollar. With global growth expectations modest and the Fed seen ready to ease, risk assets have attracted demand. Chinese equities rose to near decade highs as policymakers' stimulus and looser policy bolster domestic growth. The dollar is expected to stay under mild pressure in the near term, with the DXY hovering in a narrow range and possibly slipping below 97.00 if momentum persists.

What this signals is less a moment of breakthrough than a test of credibility. Markets respond to chatter of guarantees and rate paths, not to the dull mechanics of diplomacy. The real risk for investors is assuming a peace process is settled when the underlying geography of conflict remains unsettled. The Fed path remains the primary driver for risk assets, and any misstep from Powell could undo the current calm.

Longer term, the mix of easing monetary policy and geopolitical risk will shape the global dollar. If the diplomacy talk stalls, dollar softness could fade quickly. Policymakers must balance near term comfort with a sober assessment of structural risks in Europe and beyond.

Highlights

The week ahead will test how durable this quiet really is.