Fed Chair’s Remarks Weaken Greenback

The US dollar experienced a sharp decline after Federal Reserve Chair Jerome Powell reinforced expectations of interest rate cuts next month. During the Kansas City Fed’s annual conference in Wyoming, Powell’s comments resulted in a drop in the Bloomberg Dollar Spot Index, pushing it to its weakest level since January and putting it on track for its longest losing streak since April 2023.

Surge in Global Currencies and Market Reactions

Powell’s speech, which signaled a shift from prioritizing inflation to balancing the Fed’s dual mandate, triggered a significant rally in major global currencies. The British pound climbed more than 1% to $1.3230, reaching its highest level since March 2022. The Japanese yen also appreciated over 1%, hitting 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 decreased by approximately 2.4% in August, marking its worst monthly performance this year. Traders are increasingly expecting a Federal Reserve rate cut next month, with swaps traders now anticipating at least a quarter-point reduction. This sentiment suggests continued selling pressure on the dollar, with long positions in the derivatives market shrinking.

Yusuke Miyairi, a currency strategist at Nomura International Plc, stated that the dollar’s downward momentum is likely to continue, given the limited economic data available until the US non-farm payrolls report scheduled for early September.