Dollar Drops After Powell Supports Rate Cuts

Powell’s speech, which indicated a shift from focusing solely on inflation to balancing the Fed’s dual mandate, triggered a significant rally in major global currencies. The British pound surged more than 1% to $1.3230, its highest level since March 2022. The Japanese yen also appreciated over 1%, reaching a session high of 144.60 per dollar. The Australian and New Zealand dollars saw gains of over 1% against the greenback, while Treasuries rallied across the board.

The Bloomberg Dollar Spot Index has fallen by approximately 2.4% in August, reflecting its worst monthly performance this year. Traders’ expectations for a Federal Reserve rate cut next month have increased, with swaps traders now anticipating at least a quarter-point reduction. The sentiment suggests continued selling pressure on the dollar, with long positions in the derivatives market dwindling.

Yusuke Miyairi, a currency strategist at Nomura International Plc, noted that the dollar’s downward momentum will likely persist, given the limited economic data until the US non-farm payrolls report due in early September.

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