In the aftermath of the weekend and the Federal Reserve symposium in Jackson Hole, the currency markets experienced little movement yesterday. After a sharp decline against all G10 currencies on Friday, the US Dollar (USD) managed a modest recovery against most currencies. However, news was sparse in the currency markets, with little new information to drive significant changes.
Mary Daly, President of the San Francisco Fed, reiterated familiar sentiments, stating that while the time for rate cuts has arrived, the exact path remains uncertain. Commerzbank’s FX strategist, Volkmar Baur, noted that Federal Reserve Chair Jerome Powell’s dovish comments on Friday were a surprise to the markets, despite earlier doubts about such a stance.
Baur highlighted that Powell’s comments, indicating the possibility of a rate cut in September, reduced the risk of rates remaining unchanged, leading to market speculation about a 50-basis point move next month. The discussion around data dependency versus forward guidance remains a critical focus, especially with only one more jobs report before the Fed’s September meeting. Baur cautioned that while the central bank will emphasize its data dependency, most of the necessary information for the upcoming decision is already in hand.