US Dollar Falls Below 99 as Jackson Hole and US Canada Trade Tensions Drive FX Markets

Key Highlight

• The US dollar remains under pressure, with the dollar index falling below 99 as concerns over US fiscal credibility weigh on sentiment.

• US and Canadian trade negotiations have broken down, with the US moving ahead with a 50% tariff on around $20bn of Canadian goods. The Canadian dollar has been the clearest G10 casualty.

• Sterling and the euro remain relatively firm, while the Australian dollar is close to three-month highs following signs of further Chinese stimulus.

• Jackson Hole is the main focus this week. Fed Chair Warsh's speech could provide an important signal on whether markets should be preparing for a rate hike or a cut.

Market Recap

Currency markets started the week with the dollar still on the defensive. The dollar index has slipped below 99 following renewed concerns around US fiscal credibility after the Treasury expanded its long end bond buyback programme.

Trade tensions have added another layer of uncertainty. US Canada negotiations collapsed over the weekend, with a 50% US tariff now applying to approximately $20bn of Canadian goods. Canada reportedly sees little prospect of negotiations restarting before the US midterm elections, sending the Canadian dollar sharply lower.

Elsewhere, the euro and Swiss franc have strengthened modestly against sterling, while the Australian dollar remains supported near three-month highs by expectations of further Chinese stimulus.

Market Overview

Euro vs Dollar

The euro retains a modest upside bias against the dollar, although recent gains have left the market vulnerable to a pullback. Expectations for US monetary policy have shifted significantly, with markets now pricing around 31 basis points of further tightening over the next five meetings, compared with 51 basis points at the end of July.

The broader case for a weaker dollar continues to build, but the euro also needs stronger domestic momentum to sustain its gains. Eurozone growth forecasts have improved and are currently outperforming expectations more consistently than US data. An expected ECB hike in September is largely priced in, while energy related inflation remains a risk to the eurozone outlook.

Client impact: A move towards resistance would save dollar buyers approximately $2,525 per €250,000, while a move towards support would increase the cost by around $1,755.

Pound vs Dollar

Sterling remains in an established uptrend against the dollar, supported by stronger UK economic data and continued dollar weakness. However, sterling is becoming technically stretched, meaning a period of consolidation would not be surprising.

The Fed's September decision remains a key catalyst. At the same time, the Bank of England has maintained an uncertain outlook, leaving the direction of UK rates less clear. Over the medium term, sterling retains a modest upside bias, although positioning remains cautious and expectations of potential rate cuts from both central banks could reduce the current interest rate advantage.

Client impact: A move towards resistance would save dollar buyers approximately £4,070 per £250,000, while a move towards support would increase the cost by around £6,340.

Pound vs Euro

Sterling and the euro are currently consolidating, with the pair sitting just above its 50 day average and momentum offering little directional conviction.

The near term balance has shifted slightly towards the euro, with the ECB widely expected to raise rates while the Bank of England recently held rates. Over the medium term, sterling's interest rate advantage remains significant, but the direction of monetary policy is becoming more important. If the ECB needs to tighten further to contain inflation close to 3%, the gap between UK and eurozone rates could narrow.

Client impact: A move towards resistance would save euro buyers approximately £425 per £250,000, while a move towards support would increase the cost by around £1,730.

Bottom Line

The dollar remains the dominant theme across currency markets, but the breakdown in US Canada trade talks has created a separate shock for the Canadian dollar. For sterling and euro buyers, the key event this week is Jackson Hole. Fed Chair Warsh's comments could determine whether the dollar's recent decline continues or begins to reverse.

Until then, dollar weakness remains the broader market driver, while sterling and the euro retain a cautiously positive bias against the US currency.

24th August  2026

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