Powell’s Dovish Tone Sends Dollar Lower (25-29 Aug)

Dollar slipped below 98 after Powell signaled upcoming rate cuts, while gold steadied near $3,375.

Market Drivers and Catalysts

Currencies: Dollar dips on Powell’s dovish tone; EUR steady; GBP firm; JPY weakens on CPI.

Commodities: Gold steady on Fed easing bets; oil supported by supply risks and geopolitics.

Fixed Income: US yields fall; UK gilts ease; JGBs hover near highs; Bunds track Treasuries.

Macro events: Jackson Hole, Russia-Ukraine tensions in focus.

Macro headlines: Fed pivot signals, geopolitical risks, PMI resilience across the Eurozone.

• The dollar index fell over 0.7% to below 98 on Friday after Fed Chair Powell signaled possible rate cuts, citing labor market risks and restrictive policy. Futures now price a 91% chance of a September 25bps cut. Stocks and bonds rallied, though the dollar was flat for the week.
• Gold held near $3,375, supported by Fed easing expectations and safe-haven demand amid Russia’s largest Ukraine strike in a month. The metal is set to end the week little changed.
• Brent crude hovered above $67, lifted by US inventory draws and rising geopolitical risks, while hopes for a quick Russia-Ukraine deal faded.
• The 10-year US Treasury yield eased to 4.26%, with markets pricing in two cuts this year. The curve steepened due to inflation concerns.
• EUR/USD traded near $1.170 as Eurozone PMI hit a 15-month high, reinforcing expectations for limited ECB easing.
• GBP/USD climbed to $1.347, supported by strong UK services activity, with mild inflation keeping BoE cuts unlikely in 2025.
• USD/JPY weakened to 145.5 as Japan’s CPI eased to 3.1%, still above target. Markets expect potential BOJ hikes, though Ueda remains cautious.

Fixed Income

• US Treasuries: The 10-year yield held near 4.27% after falling nearly 10bps post-Powell’s dovish Jackson Hole speech. Markets now price an 87% chance of a 25bps cut in September, up from 75% a week earlier. Focus turns to July PCE data.
• UK Gilts: 10-year yields slipped below 4.7% from a 3-month high of 4.746%. With July CPI at 3.8%, markets see a 57% chance the Bank Rate stays at 4% through year-end, with a cut to 3.5% priced by 2026.
• Japan JGBs: The 10-year yield hovered near 1.62%, its highest since 2008. BOJ paused hikes due to tariff risks, though stronger wages and sentiment keep a late-2025 hike in play.
• Germany Bunds: Yields slipped under 2.73%, tracking Treasuries. Despite ECB ending cuts in July, markets price a 45% chance of another move this year. PMI showed the strongest growth in 15 months, led by German manufacturing.

Commodities

• Gold: Traded near $3,375, steady for the week. Support came from Fed cut expectations and geopolitical tensions. Traders now price in up to three Fed cuts this year.
• Silver: Rose to $39, close to a 14-year high, supported by Fed easing and industrial demand. China’s solar exports surged 70% in H1, boosting outlook.
• Crude Oil: Brent climbed toward $68, as Ukraine’s drone strikes hit Russian energy sites. US threats of tariffs and sanctions on Indian oil imports added to upside risk.

Currencies

• Dollar Index: Fell below 98 on Powell’s dovish signal, futures pricing a 91% chance of a September 25bps cut. Flat on the week after two consecutive weekly losses.
• Euro: Held near $1.165 as Eurozone PMI hit a 15-month high. Expectations lean toward one final ECB cut in 2025. Trade negotiations with the US may spare key sectors from tariffs.
• Pound: Rose to $1.347 on strong services activity and July inflation surprise. Markets see less than 50% chance of a 2025 cut, with easing more likely in spring 2026.
• Yen: Weakened to 145.5 as July core CPI rose 3.1%, still well above BOJ target. Speculation of a rate hike later in 2025 persists, though Ueda remains cautious.

Macro Calendar Highlights

• Jackson Hole Economic Symposium
• US PCE Price Index, S&P Global Services PMI
• UK CPI & Retail Sales
• Eurozone CPI & PMIs
• Germany GDP (Q2 final)
• Japan CPI (Jul)