USD weakens on Fed's Daly dovish shift, September rate cut signals

The US dollar index declined 0.4% during Asian trading as Federal Reserve Bank of San Francisco President Mary Daly adopted a more dovish stance, hinting at potential rate cuts as early as September. Her comments suggested the Fed is increasingly concerned about economic growth risks rather than inflation persistence, marking a notable shift from previous hawkish rhetoric. Asian currencies strengthened broadly against the greenback, with USD/JPY dropping 65 pips to 149.20 and AUD/USD gaining 0.5% to 0.6580. Markets are now pricing in a 75% probability of a 25 basis point rate cut at the September FOMC meeting, up from 55% before Daly's remarks. Technical indicators show USD/JPY approaching key support at 149.00, while resistance sits at 150.00. Traders should monitor upcoming US economic data releases, particularly inflation and employment figures, which could either reinforce or challenge the emerging dovish Fed narrative.