Traders will focus on Powell’s comments on Friday at the Fed’s Jackson Hole symposium for any new hints on the size of the expected September rate reduction and whether subsequent reductions are likely at each meeting thereafter
The dollar rebounded from a 13-month low against the euro on Thursday before Fed Chair Jerome Powell is due to speak on Friday and as the dollar’s recent weakness was seen as being overdone relative to peers.
The U.S. currency has declined on concerns about a weakening economy and on expectations the Fed is close to reducing interest rates. But the extent of the weakness, and whether it will lead the U.S. central bank to lower rates by 25 or 50 bps at its September meeting, remains in question.
The odds of a reduction of 50 bps or more rose after July’s employment report showed fewer than expected jobs gains and an unanticipated increase in the unemployment rate, though this pricing has faded as other data points to better growth.
Traders are pricing in a 27% chance of a 50bp cut next month and a 73% possibility of a 25bp reduction, as per the CME Group’s FedWatch Tool.
The dollar has been under a lot of pressure recently but I think it is getting to a place where it is quite a bit oversold, according to Brad Bechtel, global head of FX at Jefferies in New York.
We have backed away a little bit from that sort of emergency place we got to after the payroll print, but the dollar seems to be pricing as if we are still in that emergency state, Bechtel said.
Traders will focus on Powell’s comments on Friday at the Kansas City Fed’s Jackson Hole symposium for any new hints on the size of the expected September rate reduction and whether subsequent reductions are likely at each meeting thereafter.
Powell may be reluctant to offer too much detail however, with Augusts’ jobs and inflation data due after his speech, but before the September 17-18 meeting.
Minutes from the Fed’s July 30-31 meeting released on Wednesday showed that a “vast majority” of officials said a September cut was likely.
Philadelphia Fed President Patrick Harker said on Thursday he was on board with a September rate cut as long as the data performs as he expects it to and Boston Fed President Susan Collins also in her likely support.
The dollar index was 0.44% higher at 101.57. It hit 100.92 on Wednesday, the lowest since December 28. The euro declined 0.41% to $1.1103. It reached $1.11735 on Wednesday, the highest since July 2023.
