Dollar Drops After Powell Supports Rate Cuts

Fed Chair’s Remarks Weaken Greenback

The US dollar experienced a sharp decline following Federal Reserve Chair Jerome Powell’s remarks affirming expectations of interest rate cuts next month. At the Kansas City Fed’s annual conference in Jackson Hole, Wyoming, Powell’s comments led to a drop in the Bloomberg Dollar Spot Index, marking its weakest level since January and setting it on track for its longest losing streak since April 2023.

Surge in Global Currencies and Market Reactions

Powell’s speech, which indicated a shift from focusing solely on inflation to balancing the Fed’s dual mandate, triggered a significant rally in major global currencies. The British pound surged more than 1% to $1.3230, its highest level since March 2022. The Japanese yen also appreciated over 1%, reaching a session high of 144.60 per dollar. The Australian and New Zealand dollars saw gains of over 1% against the greenback, while Treasuries rallied across the board.

The Bloomberg Dollar Spot Index has fallen by approximately 2.4% in August, reflecting its worst monthly performance this year. Traders’ expectations for a Federal Reserve rate cut next month have increased, with swaps traders now anticipating at least a quarter-point reduction. The sentiment suggests continued selling pressure on the dollar, with long positions in the derivatives market dwindling.

Yusuke Miyairi, a currency strategist at Nomura International Plc, noted that the dollar’s downward momentum will likely persist, given the limited economic data until the US non-farm payrolls report due in early September.

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