Markets overview. US Dollar Drifts Higher Ahead of Jackson Hole Speech – ForexNews.PRO
The US dollar is inching higher ahead of a pivotal speech by Federal Reserve Chair Jerome Powell later today. This movement comes on the back of slightly improved business sentiment data, raising questions about whether the Fed actually needs to proceed with a rate cut in September. However, there may be limited upside potential for the dollar, particularly as foreign central banks appear to be quietly reducing their exposure to the US Treasury market.
USD: Spotlight on Powell’s Speech at 16:00 CET
The dollar has gained modest ground as investors reassess their expectations for the upcoming Federal Open Market Committee (FOMC) meeting on 17 September. Earlier this month, markets were pricing in a 27 basis point (bp) rate cut for September; this has now softened to an 18bp cut. This recalibration was largely influenced by the release of optimistic US S&P PMI data for August.
Business confidence improved across both the manufacturing and service sectors, propelling composite PMI to its highest level since December of last year. On paper, these data challenges calls from the President for emergency rate cuts. However, some dovish voices within the Federal Reserve argue that precautionary cuts might be necessary to stave off a potential rise in unemployment.
All eyes are now on Powell’s keynote address at 16:00 CET. According to insights from ING’s US economist James Knightley, Powell may stick to a more neutral stance to preserve flexibility for September’s decision. His comments are likely to hinge on key economic indicators due in early September, including jobs data (5 September) and inflation figures (11 September). While unequivocal support for a September rate cut might be unlikely, Powell is expected to address weak labor market data from May and June, leaving the probability of a rate cut still hovering above 50%.
The DXY index has shown stronger-than-expected performance this week, but significant selling pressure could emerge if the index approaches the 99.00/99.10 range, which might act as a short-term ceiling.
Meanwhile, foreign central banks appear to be gradually reducing their holdings of US Treasuries, reflected in a consistent decline in custody data provided by the Fed. Last night’s report revealed that holdings have dropped to their lowest levels of the year, down $100 billion since April. Despite this, the Treasury market remains stable due to domestic structural factors such as adjustments to liquidity requirements or increased demand tied to Stablecoins backed by Treasury bills.
Although private sector demand is offsetting foreign official sales in Treasuries, the resulting decrease in foreign central bank exposure to US-dollar assets may still weigh negatively on the currency over time.
EUR: Wage Data at Center Stage
EUR/USD continues its downward trajectory, driven by a stronger dollar and ongoing geopolitical uncertainties surrounding Ukraine. In focus on the eurozone calendar today is the Q2 negotiated wage data, which once peaked at a 5.4% year-on-year growth rate last year—a major concern for the European Central Bank due to inflationary pressures. This figure fell to 2.4% in Q1, and another soft reading today would likely be welcomed by ECB policymakers.
That said, markets have entirely ruled out any easing measures by the ECB this year, which would only come into question if there’s a notable deterioration in future economic data.
On another front, discussions between the EU and US on a trade deal yielded incremental progress yesterday. Europe aims to move forward quickly, but uncertainty remains over whether pharma and semiconductor tariffs will be capped at 15%, or if US investigations under Section 232 could result in even higher tariffs.
For EUR/USD today, Powell’s speech will play a decisive role in shaping its trajectory. Should his tone shift market expectations toward a balanced 50:50 probability of restarting Fed easing in September, EUR/USD could see a push toward the 1.1500/1.1520 zone—a scenario worth monitoring closely.
