On Mondy, the US dollar dropped to a 7-month low as traders waited for comments from Federal Reserve Chair Jerome Powell later in the week that will likely indicate the U.S. central bank will start reducing interest rates in Sept.
On Friday a key focus of Powell’s speech at Jackson Hole will be whether he indicates that the rate cut will be by 0.25% or 0.5%. Since last week’s data showed higher-than-expected shelter inflation for July and a robust retail sales report for the month, the odds of a larger cut have declined.
Another major focal point will be whether the Fed Chair indicates that rate cuts were likely at each of the next meetings. Markets may, however, overestimate how fast and far the Fed is likely to act.
Moneycorp’s head of structuring for North America, Eugene Epstein, thinks the Fed was still at the point of the justification to cut in Sept.
On a relative basis, it would be overdone to be one of the last central banks to begin their cutting cycle, and then to also start cutting 50 basis points immediately and then reduce every meeting after that.
According to the CME Group’s FedWatch Tool traders are pricing in a 25% probability of a 0.5% cut, down from 50% the prior week.
