Original article by Davide Barbuscia, Reuters
Source: https://www.tradingview.com/news/reuters.com,2025:newsml_L1N3UE0MA:0-dollar-drops-as-powell-signals-possible-september-rate-cut/
Title: U.S. Dollar Weakens as Powell Hints at Possible September Rate Cut
The U.S. dollar experienced a broad decline on Tuesday, following remarks by Federal Reserve Chair Jerome Powell that suggested softer economic momentum and opened the possibility for an interest rate cut as soon as September. Powell stated that “more good data” would strengthen the case for loosening monetary policy, remarks that the market interpreted as dovish.
Market participants adjusted their expectations in response, anticipating a potential easing cycle to begin later this year. The combination of softer labor data and Powell’s comments has added to the conviction among investors that the period of restrictive monetary policy may be drawing to a close.
Key Highlights from Powell’s Testimony and Market Reactions:
– Powell mentioned in his testimony before the Senate Banking Committee that recent economic readings indicate a “more balanced” labor market and that inflation continues to trend downward.
– He reinforced the central bank’s commitment to a data-dependent approach, noting the importance of further confirmation of easing price pressures before any policy changes are implemented.
– Powell emphasized that the Fed is seeking to avoid both “over-tightening” and “premature loosening” of interest rates.
– The remarks led markets to price in a roughly 75% chance of a 25-basis-point rate cut at the Fed’s September meeting, up from 65% earlier in the day, according to CME’s FedWatch Tool.
Dollar Reaction and Market Movements:
– The U.S. dollar index, which measures the greenback’s performance against a basket of six major currencies, fell by 0.19% to 105.05 on Tuesday.
– Against the euro, the dollar dropped 0.2%, with the euro reaching $1.0829.
– The British pound rose 0.31%, climbing to $1.2807 as the dollar continued to ease.
– The Japanese yen strengthened slightly, with the greenback sliding 0.1% to 160.58 yen. This movement reflected broader weakness in the dollar even in the face of recent Japanese government interventions to support the yen.
Economist and Analyst Views:
– Zachary Griffiths, senior investment grade strategist at CreditSights, indicated Powell’s comments suggest a central bank leadership that is open to cutting rates soon if inflation continues to cool. “You don’t get change unless you get Powell saying something relatively dovish,” Griffiths said.
– Analysts added that Powell also stopped short of declaring that inflation had been defeated or that interest rate cuts were guaranteed. Nonetheless, the broader tone of his comments was sufficiently cautious to prompt a market reaction.
– According to Karl Schamotta, chief market strategist at Corpay in Toronto, the Fed chair is preparing the markets for a policy shift but remains data-dependent. “It increasingly looks like Powell is threading the needle,” he said.
Fed’s Policy Stance in Focus
The Fed’s current benchmark interest rate remains in the range of 5.25% to 5.50%, where it has been since July 2023. Policymakers have kept rates unchanged for almost a year, citing persistent inflation and labor market tightness. However, economic indicators have recently shown signs of moderation.
Some developments that have contributed to market expectations for rate cuts include:
– Falling job openings: Indicators from the Labor Department show that the number of job vacancies has dropped, signaling a potential cooling in the labor market.
– Slowing wage growth: Wage increases have been moderating, a trend the Fed would view as supportive of falling inflation.
– Decline in inflation readings: Key inflation measures like the core Personal Consumption Expenditures (PCE) Index have decelerated, even if not
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