Stocks Slip Following Friday’s Gains as US Dollar Strengthens Amid Fed Rate Cut Speculation
August 25, 2025 – New York
After a strong rally on Friday sparked by comments from Federal Reserve Chair Jerome Powell, major U.S. stock indexes retreated on Monday, while the U.S. dollar regained ground. Investors are closely monitoring signals about future Federal Reserve policy, weighing the possibility of an interest rate reduction this September.
Market Overview
The Dow Jones Industrial Average dropped 349.27 points, or 0.77%, closing at 45,282.47. The S&P 500 declined by 27.59 points, or 0.43%, to 6,439.32, and the Nasdaq Composite eased 47.24 points, or 0.22%, to 21,449.29. These declines follow Friday’s enthusiasm after Powell indicated a potential Fed rate cut in September—though he stopped short of confirming it—leading to a temporary dip in the dollar. The dollar index rebounded 0.56% on Monday to 98.39, with the euro weakening 0.79% to $1.1623 and the dollar gaining 0.5% against the Japanese yen to 147.67. Interest Rate Expectations
Fed funds futures show traders now price in an 84% chance of a 25 basis point cut at the Fed’s September meeting on the 16-17th, according to CME Group’s FedWatch Tool. Major investment banks, including Barclays, BNP Paribas, and Deutsche Bank, have adjusted forecasts to reflect this expectation.
“On Friday there was a lot of enthusiasm about Powell basically indicating that there would likely be a rate cut. The market may have overreacted to his comments,” said Peter Cardillo, chief market economist at Spartan Capital Securities in New York. He added, “I do believe we will get a rate cut, but I don’t think it will be more than 25 basis points, and a lot depends on this Friday’s PCE price inflation index.”
Key Data and Earnings on Horizon
Investors await the release of the U.S. personal consumption expenditures (PCE) price index on Friday, which serves as the Fed’s preferred gauge of inflation. A hotter-than-expected producer price index last month has cast some doubt over the certainty of a rate cut.
Additionally, market participants are focused on upcoming earnings reports, especially from AI chipmaker Nvidia (NVDA), scheduled to report on Wednesday. Nvidia’s results are highly anticipated, as most S&P 500 companies have so far outperformed earnings expectations this quarter, supporting overall market valuations.
According to LSEG data, estimated year-over-year earnings growth for the S&P 500 climbed to 12.9% as of Friday, a sharp increase from 5.8% on July 1. Global Market Movements
Globally, MSCI’s gauge of stocks across 49 countries fell 0.24% to 952.96. Europe’s STOXX 600 index declined 0.44%, although London markets were closed for a holiday, resulting in thinner volumes.
On the bond front, U.S. Treasury yields edged higher as auctions of short- and intermediate-term debt were expected this week. The yield on benchmark 10-year notes increased by 1.9 basis points to 4.277%. European bond yields also reversed their Friday decline.
Commodities and Trade News
Oil prices extended their gains from last week amid expectations of new U.S. sanctions targeting Russian oil and ongoing Ukrainian attacks on Russian energy infrastructure. U.S. crude futures rose $1.14 to settle at $64.80 a barrel, while Brent crude increased $1.07 to $68.80. Gold prices slipped 0.21% to $3,364.47 an ounce.
In corporate deal news, U.S. beverage giant Keurig Dr Pepper (KDP) announced plans for an $18 billion acquisition of JDE Peet’s (JDEP), aiming to create a global coffee powerhouse to rival Nestlé. This deal marks Europe’s largest acquisition in over two years.
On the geopolitical front, U.S. President Donald Trump expressed interest in meeting North Korean leader Kim Jong Un before year-end and indicated openness to further trade negotiations with South Korea despite recent criticisms of the ally. The Korean won weakened 0.5% against the dollar as a result.
Conclusion
Monday’s market pullback appears to reflect cautious repositioning following Friday’s upbeat reaction to Powell’s comments, as investors balance optimism about a Fed rate cut with lingering inflation concerns and upcoming key economic data. Market watchers are closely following earnings announcements and geopolitical developments that could influence investment sentiment in the near term.
Reporting by Caroline Valetkevitch in New York; Additional reporting by Nell Mackenzie in London; Editing by Andrew Heavens, Lisa Shumaker, and Nia Williams.