- Powell’s Jackson Hole remarks fueled bets on a September Fed rate cut.
- Mixed US data last week kept volatility high across short-dated contracts.
- This week’s focus remains on Q2 GDP revision and Core PCE inflation (Fri), pivotal for Fed policy repricing.
Currency futures ended the last week in a volatile fashion as traders reacted to Fed Chair Powell’s dovish remarks at the Jackson Hole Symposium. Powell emphasized that though the inflation risk remains, the Fed’s preference is to stabilize the labor market. It signaled a rate cut as early as September. His balanced but cautious tone initiated a sharp repricing across the futures curve, with the dollar slipping against the major peers.
The impact was immediately seen as the euro and pound futures rose significantly as investors pared back the bets of prolonged higher rates by the Fed. Euro futures rose from 2-week lows while pound futures extended the rally despite UK growth concerns. Meanwhile, the yen futures found strong buying interest as lower US yields made the Japanese currency attractive for investors.
On the data front, the previous week’s US data increased the Fed’s dilemma as flash PMI surveys show resilience in the manufacturing sector. Yet the rise in jobless claims reflected deep concerns about the labor market. Futures traders experienced volatility amid mixed signals, especially in the front-month maturities.
Looking ahead, the markets are waiting for US macroeconomic releases that will directly impact the interest rate expectations. On Tuesday, the Core Durable Goods Orders data will provide insight into industrial demand and corporate investment appetite. An upbeat number could support the dollar and pressure other currency futures.
On Thursday, the Q2 GDP data is due, where any downward revision could add weight to the recessionary fears, increasing bets for aggressive easing.
Finally, the Core PCE Index to be released on Friday will be decisive. A softer print could ignite the dollar weakness further, while an upside surprise could delay the odds of more cuts by the end of the year.
