Forex: Dollar turns lower after Powell says it's time to cut rates

Federated Hermes

23/08/2024 16:33

(Updates as of 1057 ET)
    By Alden Bentley, Ankur Banerjee and Sruthi Shankar
       NEW YORK, Aug 23 (Reuters) - The dollar turned lower and
sterling rose to its highest in more than two years on Friday
after Federal Reserve Chair Jerome Powell gave an unambiguous
signal that the long anticipated U.S. interest rate cut would
come next month.
    At his keynote speech to the Kansas City Fed's annual
economic conference in Jackson Hole, Wyoming, Powell said "the
time has come for policy to adjust," given that upside risks to
inflation have diminished and downside risks to employment have
increased. 
    "We do not seek or welcome further cooling in labor market
conditions," Powell said. "We will do everything we can to
support a strong labor market as we make further progress toward
price stability. With an appropriate dialling back of policy
restraint, there is good reason to think that the economy will
get back to 2% inflation while maintaining a strong labor
market."
    Traders on Friday continued to bet on a
quarter-percentage-point rate cut at the Fed's Sept. 17-18
meeting, but after Powell's remarks priced in about a
one-in-three chance of a bigger 50-basis point cut, up from a
little more than a one-in-four probability earlier.
    The euro and yen rose weakening the dollar index  =USD ,
which measures the greenback against a basket of six currencies
including both of those and was off 0.63% at 100.83, having been
slightly firmer before Powell spoke.
    "I think the markets' reaction, which has been the dollar a
bit weaker, bond yields a bit lower, is about right. It's not
like he said 'yeah, were going to do three 50s to begin the
easing cycle'," said Steve Englander, head of G10 FX research at
Standard Chartered Bank in New York.
    "Implicitly, it opens the door to 50s at some point without
giving a timetable for it. We still don't think 50 is going to
be the first move, but it could come quickly if the labor market
continues to weaken," he said, referring to the Fed chief's
remarks on inflation and employment.
    Sterling  GBP=D3  climbed to a more than two-year high
against the greenback as Powell's dollar-negative comments
dovetailed with signs of strength in the UK economy.
    The pound was up 0.83% at $1.3197, touching its highest
since late March 2022. It surpassed a previous 13-month high of
$1.3144.
    Aiding the move was a survey that showed British consumer
confidence held at an almost three-year high in August, adding
to positive signals in the wider economy.
    The euro  EUR=  was up 0.65% at $1.1182. Dollar/yen  JPY= , 
weakened 0.76% to 145.15.
    Earlier in the session, BOJ Governor Kazuo Ueda reaffirmed
his resolve to raise rates if inflation stayed on course to
sustainably hit the 2% target.
    "His (Ueda) comments suggest that market turbulence won't
deter the BOJ from considering more rate hikes in the future
even if the next move isn't imminent," said Vasu Menon, managing
director of investment strategy at OCBC.
    "As long as the move in the dollar-yen is orderly and
gradual, this should not rattle global markets as much as it did
earlier this month."
    Bitcoin  BTC=  rose 0.56% to $61,018.00.
        
  

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 (Reporting by Ankur Banerjee in Singapore and Sruthi Shankar in
Bengaluru; Editing by Christian Schmollinger, Shri Navaratnam,
Kim Coghill, William Maclean)
 ((ankur.banerjee@thomsonreuters.com;; Mobile - +65 8121 3925;
Follow on X (formerly Twitter): @AnkurBanerjee17;))