The dollar lost ground in European trade on Monday against a basket of major rivals, sharpening losses for another session and plumbing 13-month lows, after Fed Chair Jerome Powell’s speech at Jackson Hall.
Powell’s somewhat bearish remarks confirmed the imminent start of the US monetary easing cycle, with multiple Fed rate cuts expected this year.
The Price
The dollar index fell 0.15% today to 100.53, the lowest since July 2023, with a session-high at 100.75.
The index closed down 0.85% on Friday, the fifth loss in six days.
The index also lost 1.7% last week, the fifth weekly loss in a row, and the largest since November 2023.
US Yields
US 10-year treasury yields fell 0.7% today to near multi-week lows, in turn pressuring the greenback.
The latest decline came after Powell’s speech in Jackson Hall last Friday, at which he confirmed the imminent start of a new cycle of monetary easing.
Powell
At Jackson Hall, Fed Chair Jerome Powell sent out clear signals about the approach of rate cuts, but refused to pin a specific date.
Powell said in his annual Jackson Hall speech that it’s time to modify policies, with the direction clear. He added that the timing of the next rate cut will depend on data and developing outlook.
He pointed to noticeable progress in containing inflation, and added that the Fed can now shift to the other half of its double mission, which is to maintain an economy with full employment.
US Rates
Following Powell’s speech, the odds of a 0.5% Fed rate cut in September rose from 25% to 38%, and the odds of a 0.25% cut fell to 62%.
The markets are expecting 100 basis points of interest rate cuts by the Fed this year.
- US Yields weakness underpins gold
- Increasing chances of deep US rate cuts
Gold prices rose in European trade on Monday on track for the second profit in a row, and almost touching record highs as US 10-year treasury yields weakened.
Federal Reserve Chair Jerome Powell’s speech in Jackson Hall last week was less optimistic than expected, boosting the odds of multiple Fed rate cuts this year.
The Price
Gold prices rose 0.5% today to $2525 an ounce, with a session-low at $2508.
On Friday, gold prices rose 1.15%, resuming gains and approaching a record high at $2531.
The precious metal rose 0.25% last week, the second weekly profit in a row as both the dollar and US yields lost ground.
US Yields
US 10-year treasury yields fell 0.7% on track for the second loss in a row, while about to mark multi-week lows, in turn boosting non-yielding assets such as gold.
The latest decline came after Powell’s speech in Jackson Hall last Friday, at which he confirmed the imminent start of a new cycle of monetary easing.
Powell
At Jackson Hall, Fed Chair Jerome Powell sent out clear signals about the approach of rate cuts, but refused to pin a specific date.
Powell said in his annual Jackson Hall speech that it’s time to modify policies, with the direction clear. He added that the timing of the next rate cut will depend on data and developing outlook.
He pointed to noticeable progress in containing inflation, and added that the Fed can now shift to the other half of its double mission, which is to maintain an economy with full employment.
US Rates
Following Powell’s speech, the odds of a 0.5% Fed rate cut in September rose from 25% to 38%, and the odds of a 0.25% cut fell to 62%.
The markets are expecting 100 basis points of interest rate cuts by the Fed this year.
The SPDR
Gold holdings at the SPDR Gold Trust fell by 1.73 tonnes on Friday to a total of 856.12 tonnes, the lowest since August 16.
- Euro above $1.12 for first time in 2024
- More speculation about reducing the eurozone-US interest rate gap
Euro fell in European trade on Monday against a basket of major rivals, giving up 13-month highs against the dollar on profit-taking.
The common currency managed for a few moments to surpass the $1.12 barrier for the first time since July 2023, amid hopes for a reduced interest rate gap with the US.
Most analysts now expect the European Central Bank to cut interest rates by 25 basis points before the year end, while the Federal Reserve is expected to cut rates by 100 basis points.
The Price
The EUR/USD pair fell 0.1% today to $1.1175, with July 2023 highs at $1.1202.
The pair rose 0.7% on Friday after less aggressive remarks by Fed Chair Jerome Powell in Jackson Hall.
Euro closed up 1.5% last week against the dollar, the fourth weekly profit in a row, and the largest since November 2023.
Official eurozone consumer prices data showed inflation accelerating once more in Europe, which renewed pressures on ECB policymakers.
Traders have priced in a single 0.25% rate cut by the ECB before the year end.
Now they wait for more eurozone data, and a speech by ECB President Christine Lagarde in Jackson Hall later this week to gather more clues about the future of monetary policy.
Powell
At Jackson Hall, Fed Chair Jerome Powell sent out clear signals about the approach of rate cuts, but refused to pin a specific date.
Powell said in his annual Jackson Hall speech that it’s time to modify policies, with the direction clear. He added that the timing of the next rate cut will depend on data and developing outlook.
He pointed to noticeable progress in containing inflation, and added that the Fed can now shift to the other half of its double mission, which is to maintain an economy with full employment.
US Rates
Following Powell’s speech, the odds of a 0.5% Fed rate cut in September rose from 25% to 38%, and the odds of a 0.25% cut fell to 62%.
The markets are expecting 100 basis points of interest rate cuts by the Fed this year.
- More Aggressive remarks by BOJ Governor Kazuo Ueda
- Bearish remarks from Fed Chair Powell
The yen rose in Asian trade on Monday against a basket of major rivals, extending gains for the second day against the US dollar, and hitting three-week highs, amid increasing pressures once more on yen carry trades following recent remarks by the central banks governors in Japan and the US.
Bank of Japan Governor Kazuo Ueda’s testimony ahead of the National Diet was more aggressive than expected, boosting the odds of a third rate hike this year.
Conversely, Fed Chair Jerome Powell’s remarks at Jackson Hall were more pessimistic than expected, underpinning speculation about big US rate cuts before the year end.
The Price
The USD/JPY fell 0.6% today to 143.44, the lowest since August 5, with a session-high at 144.35.
The yen closed up 1.3% on Friday against the dollar, the first profit in three days as the US-Japan interest rate gap is expected to shrink soon.
Yen rose 2.2% against the dollar last week, the first weekly profit in three weeks as yen carry trades faced renewed pressures.
Ueda’s Testimony
A special National Diet session was held on Friday to discuss the Bank of Japan’s surprise move to raise interest rates last month and normalize policies.
Kazuo Ueda said that a rate hike in July was in line with the central bank’s economic outlook, asserting the bank is ready to adjust its policies if the economy moved as expected.
He said that recent changes to the monetary policy were suitable, and he warned from any sudden moves in the forex impact, the impact of such moves on prices and wages.
Ueda said that extreme volatility in the exchange price impacts inflation outlook.
He believes that interest rates could reach neutral levels if data matches the outlook until 2026.
Japanese Rates
Following Ueda’s speech, traders put a 70% chance for a December rate hike by the Bank of Japan.
Powell
At Jackson Hall, Fed Chair Jerome Powell sent out clear signals about the approach of rate cuts, but refused to pin a specific date.
Powell said in his annual Jackson Hall speech that it’s time to modify policies, with the direction clear. He added that the timing of the next rate cut will depend on data and developing outlook.
He pointed to noticeable progress in containing inflation, and added that the Fed can now shift to the other half of its double mission, which is to maintain an economy with full employment.
US Rates
Following Powell’s speech, the odds of a 0.5% Fed rate cut in September rose from 25% to 38%, and the odds of a 0.25% cut fell to 62%.
The markets are expecting 100 basis points of interest rate cuts by the Fed this year.
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