The United States dollar began the week little changed following a volatile reaction to Federal Reserve Chair Jerome Powell’s Jackson Hole speech on Friday (Saturday AEST), which signalled the central bank could cut rates as soon as September.
The U.S. Dollar Index (DXY), which tracks the Greenback against six major currencies, hovered near 97.76 after slipping 0.1% last week.
Powell acknowledged that “risks to inflation are tilted to the upside, and risks to employment are to the downside — a challenging situation.” His comments prompted traders to boost the odds of a September rate cut to 84.1%, up from 75% a week earlier, according to the CME Group FedWatch Tool.
Mixed U.S. economic data added to the uncertainty. The composite purchasing managers' index PMI edged up to 55.4 in August, manufacturing PMI climbed to 53.3 from 49.8, while services PMI slipped slightly to 55.4 but still beat expectations.
Meanwhile, weekly jobless claims rose to 235,000, the highest in eight weeks and slightly above market expectations of 225,000, hinting at softening labour market conditions.
Euro lifts on dovish Fed
The euro gained ground, trading near 1.1718 after rallying almost 1% during the North American session on Friday.
Powell’s dovish tilt encouraged markets to price in near-term Fed easing, lifting the euro.
However, traders remain cautious ahead of key U.S. releases, which could determine whether a September cut materialises or is delayed into late 2025.
Aussie steadies ahead of data
The AUD/USD currency pair steadied at 0.6490 to start the week after a 0.3% loss previously.
Powell’s recognition of downside risks to the U.S. labour market briefly pressured the dollar, but focus for the Aussie now shifts to domestic catalysts.
Traders are awaiting the Reserve Bank of Australia’s meeting minutes and fresh inflation data, both of which could set the tone for the Aussie in the days ahead.
Pound supported by cut bets
Sterling opened the week at 1.3518, buoyed by Powell’s comments that raised September cut odds to as high as 84.1%.
Markets have now fully priced in 50 basis points of Fed easing by year-end. Powell’s warning of rising labour risks, coupled with the potential for one-time inflation from tariffs, has reinforced stagflation concerns.
UK housing and credit figures later in the week may provide additional direction for the pound.
Yen strengthens on lower yields
The yen strengthened sharply, with the USD/JPY currency pair retreating from a three-week high of 148.78 to trade around 146.66.
The move followed Powell’s balanced but cautious remarks, which triggered a broad U.S. dollar selloff and pushed Treasury yields lower.
This shift has kept the USD/JPY under pressure, with Tokyo CPI and Japanese labour data later this week expected to provide further guidance.
Economic Calendar Week Ahead
This week’s economic calendar is packed with data that could sway FX markets. Monday features New Zealand retail sales and U.S. new home sales.
On Tuesday, focus turns to RBA minutes in Australia and U.S. durable goods, house prices, and consumer confidence.
Wednesday brings South Korean business confidence, Australian CPI and construction data, and China’s industrial profits.
Thursday is busy with ECB minutes, Eurozone sentiment data, and U.S. GDP revisions, jobless claims, and housing figures.
Friday sees a string of releases including Tokyo CPI, Japanese labour data, UK house prices, Canada’s GDP, and the closely watched U.S. Core PCE price index.
Saturday closes with China’s manufacturing and non-manufacturing PMI readings, a key test for global growth sentiment.
