Federal Reserve (Fed) Chair Jerome Powell’s speech at the annual Jackson Hole central bank summit renewed market optimism as he leaned cautiously dovish, signaling openness to September interest rate cuts while emphasizing data-dependency. Powell said the “shifting balance of risks may warrant policy adjustments” and introduced a new policy framework of flexible inflation targeting, which removes the earlier “makeup” strategy. He highlighted downside risks to the labor market and tariff-driven inflation concerns, which drove interest rate futures to show a 90% probability of a September rate cut and two additional cuts by the end of 2025.
Following Powell’s remarks, St. Louis Federal Reserve President Alberto Musalem said more data is needed before deciding on a September cut, while Cleveland Federal Reserve President Beth M. Hammack noted Powell appeared open-minded. Markets reacted strongly: the U.S. Dollar Index (DXY) posted its biggest daily drop since August 1, Gold surged to a two-week high, major U.S. equity benchmarks gained more than 1.5%, and cryptocurrencies rebounded, with Ethereum (ETH) hitting a record high. Major currencies and Antipodeans also advanced on U.S. Dollar weakness.
However, gains slowed as traders grew cautious ahead of this week’s release of the U.S. Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure. At the same time, geopolitical risks weighed on sentiment. Russia-Ukraine peace talks faced setbacks as Russia attacked two Ukrainian villages and Kyiv launched drone strikes on Russian nuclear and power plants. Russian Foreign Minister Sergei Lavrov said President Vladimir Putin is willing to meet Ukrainian President Volodymyr Zelenskyy “when the agenda is ready,” but claimed it is not ready and accused Zelenskyy of rejecting all proposals.
On the ratings front, S&P Global Ratings and Fitch Ratings kept the U.S. credit outlook unchanged last week but warned about fiscal deficit and slower growth risks. In Europe, European Central Bank (ECB) President Christine Lagarde said Eurozone jobs remain resilient as inflation eases with little employment cost. ECB policymaker Martins Kazaks said interest rates are “in a good place,” while Italy’s Deputy Prime Minister and Foreign Affairs Minister Antonio Tajani called for ECB rate cuts, revival of Quantitative Easing (QE), and more credit support for Small and Medium Enterprises (SMEs). Meanwhile, European Commission President Ursula von der Leyen defended the U.S.-EU trade pact as “strong, if not perfect,” stressing it prevents a damaging trade war.
In Asia, Bank of Japan (BoJ) Governor Kazuo Ueda acknowledged labor market challenges but hinted at the possibility of further rate hikes. Similarly, Bank of England (BoE) Governor Andrew Bailey flagged weak productivity and low labor participation as signs of an “acute growth challenge” for the United Kingdom.
Recent economic data showed New Zealand’s Q2 Retail Sales beat forecasts but slowed from the previous quarter, while Canada’s June Retail Sales matched expectations at 1.5% growth. Separately, Bloomberg reported that Commodity Futures Trading Commission (CFTC) data revealed the weakest bullish bets on U.S. crude oil in 17 years, reflecting concerns about easing Russia sanctions, slowing global demand, and rising OPEC+ output, despite Middle East supply risks and unchanged OPEC demand forecasts for 2025.
On cryptocurrencies, Japan’s Finance Minister Katsunobu Kato expressed readiness to create an appropriate regulatory environment, saying crypto assets “can also be part of diversified investments.”
After posting its biggest daily jump since August, EURUSD pulled back from a one-month high as dovish remarks from European Central Bank (ECB) officials, domestic criticism of the EU-U.S. trade deal, and geopolitical tensions with Russia weighed on sentiment.
Meanwhile, GBPUSD remained lackluster, holding Friday’s gains but lacking fresh momentum. Traders stayed cautious after Bank of England (BoE) Governor Andrew Bailey signaled concerns over economic growth and employment challenges.
USDJPY rose 0.30% intraday, rebounding from a one-week low and leading major currency pairs in consolidating the U.S. Dollar’s Friday moves. The pair brushed aside hawkish comments from Bank of Japan (BoJ) Governor Kazuo Ueda and showed little reaction to the cautious market mood ahead of U.S. and Japan inflation data.
The Yen’s role as a risk barometer and the market’s paring of recent U.S. Dollar losses helped attract buyers, ending a two-week downtrend in USDJPY.
Friday’s U.S. Dollar decline lifted the currencies of Australia, New Zealand, and Canada, but follow-up momentum stalled as traders remained cautious about the dovish policy bias of the three central banks.
NZDUSD ignored stronger Q2 Retail Sales in New Zealand, while USDCAD struggled under crude oil’s sluggish performance despite a four-day winning streak. Bloomberg, citing Commodity Futures Trading Commission (CFTC) data, noted that traders have turned increasingly bearish on crude.
Even so, fading hopes of a Russia-Ukraine peace deal and rising odds of a September Federal Reserve rate cut—now seen as nearly certain- helped USDCAD rebound, while AUDUSD and NZDUSD remained flat.
Gold stays mildly positive after a strong rebound from the $3,319 support confluence, with traders awaiting this week’s key data. Concerns over demand from India and China—the world’s top gold buyers—pose risks, but a dovish Federal Reserve outlook and supportive technical signals keep the metal biased toward a gradual rise toward $3,385 resistance.
Crude Oil extends its four-day winning streak despite limited upside momentum. Prices are supported by Russia-Ukraine tensions and Israel’s push against Hamas in Gaza despite global pressure to halt military action. However, U.S. Commodity Futures Trading Commission (CFTC) data shows the lowest bullish bets since October 2008, while OPEC still projects static energy demand for 2025.
Cryptocurrencies are positioned to rise, supported by a softer U.S. Dollar, Trump’s pro-industry measures, and a growing global shift toward stablecoins. However, recent changes in institutional buying, especially following last week’s early declines in major cryptos, pose challenges for Bitcoin (BTC) and Ripple (XRP) buyers. Meanwhile, Ethereum (ETH) continues to shine, hitting an all-time high (ATH) and drawing the most attention among investors. That said, most cryptocurrencies printed mild losses early Monday amid cautious markets.
Monday may see limited market moves due to a UK holiday, but the economic calendar features German IFO Business Climate, U.S. New Home Sales, Chicago Fed National Activity Index, and Dallas Fed Business Index.
Traders will mainly focus on risk assets and related news ahead of Friday’s U.S. Core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge. Strong U.S. data could raise inflation fears and challenge market expectations of two more Fed rate cuts after September’s 0.25% reduction, allowing the U.S. Dollar to recover and putting pressure on risk assets.
Equities and cryptocurrencies could edge higher, while USDJPY may retreat amid hawkish Bank of Japan (BoJ) signals. Meanwhile, EURUSD, GBPUSD, and the Antipodean currencies may remain pressured.
Despite a potentially slow Monday, this week promises busy trading, giving the USD a chance to pare earlier losses.
May the trading luck be with you!
