**U.S. Dollar Retreats Following Powell’s Labor Market Remarks: In-Depth Analysis of Major Currency Pairs**
*Originally reported by James Hyerczyk on FX Empire. Expanded for clarity and depth with additional insights from recent market data and expert commentary.*
The U.S. Dollar declined against a basket of major currencies after Federal Reserve Chair Jerome Powell highlighted growing risks in the labor market. These comments signaled a shift towards a potentially more dovish stance from the Fed, leading investors to reassess the timing and magnitude of future interest rate cuts. This article analyzes how Powell’s remarks influenced the U.S. Dollar index and impacted the EUR/USD, GBP/USD, USD/CAD, and USD/JPY currency pairs.
## Overview: Powell’s Comments Spark Dollar Weakness
Federal Reserve Chair Jerome Powell’s speech on July 2, 2024, at a monetary policy event focused heavily on the health of the U.S. labor market. Powell stated that while inflation is continuing to ease, there are now “notable risks” in the employment landscape. This marked a subtle but distinct shift in policy tone. Up until recently, the Fed had primarily emphasized reducing inflation. However, signs of a softening job market suggest the central bank may pivot towards rate cuts sooner than previously anticipated.
Powell said, “The labor market remains strong, but cracks are beginning to emerge.” He emphasized that the September Federal Reserve meeting would have to weigh both inflation and employment trends carefully. Financial markets reacted swiftly, with the U.S. Dollar Index falling below the 105 level as traders priced in higher odds of a rate cut by November 2024.
## U.S. Economic Backdrop: Balancing Act Between Inflation and Employment
Before delving into individual currency pairs, it’s important to understand the broader economic context in the U.S.:
– The latest Core Personal Consumption Expenditures (PCE) data showed a year-on-year inflation rate of 2.6% in May 2024, down from 2.8% in April and inching closer to the Fed’s 2% target.
– Non-farm payroll (NFP) data released in June showed job growth moderating, with 150,000 new jobs added versus expectations for 180,000.
– Unemployment ticked up slightly to 4.1%, raising concerns about a cooling labor market.
With inflation slowing and labor market indicators softening, the Fed faces pressure from both ends, making its decision-making increasingly complex.
## Market Expectations: Higher Odds of Rate Cuts
Following Powell’s comments:
– The probability of a 25-basis-point cut in September rose to 68% according to CME FedWatch Tool.
– Bond yields dropped, with the 10-year Treasury yield falling to around 4.28%.
– U.S. equities rallied on the prospect of easing monetary policy.
Currency traders responded by selling the U.S. Dollar, causing notable movements in several major forex pairs.
—
## EUR/USD: Gaining as the Dollar Retreats
The euro gained ground against the U.S. Dollar, with the EUR/USD pair climbing toward 1.0780, testing key resistance levels.
**Key Factors Driving EUR/USD:**
– Eurozone inflation printed at 2.5%, in line with expectations, allowing the European Central Bank (ECB) to remain cautious about further rate moves.
– German retail sales and French consumer confidence surprised to the upside, offering modest support for the euro.
– Across the Atlantic, Powell’s dovish comments pushed bond yields lower, giving the euro relative appeal.
**Technical Analysis:**
– Resistance stands at 1.0780 and 1.0810. A break above the latter could set up a move toward 1.0860.
– Support lies at 1.0710 and then at 1.0665.
– RSI is neutral, suggesting potential for further upside if momentum builds.
**Outlook:**
Short-term sentiment remains bullish for
Read more on USD/CAD trading.