The US dollar made a strong comeback against most major currencies, except for the Japanese yen. This unexpected rally comes ahead of Fed Chair Powell’s highly anticipated speech at Jackson Hole.
Despite an increase in jobless claims, investors seem to be readjusting their bets on a potential Fed rate cut in September. The recent data showing a rise in jobless claims did not deter traders from liquidating their short dollar positions.
Market participants are now taking a more realistic approach, with the probability of a 50bps rate cut decreasing to 25%. However, the overall expectation is still for a total reduction of 97 basis points by the end of the year.
While Powell’s speech today may provide more clarity on the Fed’s stance, the market remains cautious. The recent Fed minutes revealed some officials’ support for a rate cut in July, leading to speculation about a September move.
Pound Gains, Yen Rebounds on BoJ Ueda’s Testimony
The British pound showed strength, thanks to better-than-expected PMI data for August. However, the yen was the only major currency that resisted the dollar’s rebound, possibly due to BoJ Governor Ueda’s remarks about raising rates if inflation targets are met.
BoJ’s commitment to hiking rates may have dampened enthusiasm for the carry trade involving the yen as a funding source for higher-yielding assets.
Equities and Gold Slide, Await Powell’s Speech
Wall Street experienced a bearish day, driven by tech share declines and a readjustment of the Fed rate path expectations. The possibility of a less dovish stance from Powell today could lead to further market turbulence.
Gold also faced selling pressure, losing over 1% amid the dollar’s rally and rising Treasury yields. While short-term fluctuations are expected, the overall trend for gold remains upward.
In conclusion, investors should pay close attention to Powell’s speech as it could provide valuable insights into the Fed’s future monetary policy decisions. The market sentiment is cautious, with expectations of further rate cuts tempered by recent economic data and officials’ remarks. Traders should remain vigilant and adjust their strategies accordingly to navigate the current market uncertainties.