The US dollar strengthened slightly on Monday (August 25th), but struggled to recover from a sharp decline triggered by Federal Reserve Chairman Jerome Powell's dovish stance, which left the door open for an interest rate cut in the world's largest economy next month.

The euro fell 0.1% to $1.1701 but remained near Friday's high of $1.174225, a level not seen since July 28th. The pound and Swiss franc also weakened by about 0.1%.

Powell, in a closely watched speech at the Fed's annual Jackson Hole symposium on Friday, hinted at the possibility of an interest rate cut at the US central bank's meeting next month, saying that risks to the labor market were rising, while also noting that inflation remained a threat.

Major brokerages, including Barclays, BNP Paribas, and Deutsche Bank, now expect a 25 basis point Fed rate cut in September following Chairman Jerome Powell's remarks. However, analysts at Bank of America are sticking to their call for the Fed to keep rates on hold next month, although they acknowledge the risks have shifted to a lower level.

"We see a risk that the Fed could make a policy mistake by cutting rates just as economic activity is recovering, with inflation approaching 3%," they said in a note. Traders now price in an 87% chance of a quarter-point rate cut on September 17, up from around 70% before Powell's speech, according to the CME FedWatch tool.

Key data points due include the Fed's preferred inflation gauge, the PCE deflator, on Friday, and monthly payrolls figures for August, due a week later. In addition to expectations surrounding the Fed's easing path, the dollar is also being weighed down by US President Donald Trump's attacks on Powell and other Fed policymakers, which have raised concerns about the central bank's independence. Fed Chair Lisa Cook became Trump's latest target last week, and on Friday Trump said he would fire her if she did not resign over allegations related to mortgages she held in Michigan and Georgia. (alg)

Source: Reuters