Second Thoughts about the Scope and Implication of Possible Resumed Federal Reserve Interest Rate Cuts – Currency Thoughts
Second Thoughts about the Scope and Implication of Possible Resumed Federal Reserve Interest Rate Cuts
August 25, 2025
(177) The euphoria of investors following last Friday’s speech from Fed Chairman Powell ebbed quickly. Whereas risk-on behavior surged before the weekend on the signal that a rate reduction in September would be up for likely discussion, today’s market activity has been considerably more muted.
- Ten-year sovereign debt yields have risen seven basis points in Italy, six basis points in Germany, France and Spain and three bps in the United States.
- The dollar slipped overnight by 0.2% versus the Australian dollar and 0.1% vis-a-vis the Mexican peso but is also up 0.3% relative to the Japanese yen and South Korea won and by 0.1% against the euro, Swiss franc, and sterling.
- At mid-morning in NY, the S&P 500, DOW and Russell 2000 had eased back 0.3%. European stocks were also down somewhat. In the Pacific Rim, where markets on Friday closed Friday before Powell’s more-dovish-than-anticipated remarks, share prices today advanced by 2.2% in Taiwan, 1.9% in Hong Kong, 1.5% in China, 0.9% in Indonesia and 0.4% in Japan.
- West Texas Intermediate oil jumped 1.5% thus far today, but Bitcoin’s price is down 1.3%.
Fresh U.S. voter approval ratings of President Trump confirm a further hemorrhaging of his support, with twice as many people strongly disapproving of his performance than the share still showing strong approval. Given the implementation of autocratic norms, the buyers remorse may have little effect on MAGA’s progressively tighter hold on American power.
The IFO Institute’s August survey of Germany’s business climate rose to a 16-month high of 89.0 in spite of a 2-month low in perceived current economic conditions. The reading for expectations increased 0.8 points to its best reading in 16 months. Yet IFO officials warned that the recovery is proceeding weakly. Sector readings for manufacturing, services, trade and construction were all a tad softer than in July.
Speeches at the Jackson Hole Symposium on its final day from the heads of the European Central Bank and the Bank of Japan sent opposite signals. ECB President Lagarde did not say that rate cuts would resume at next month’s meeting of the Governing Council, and BOJ Governor Ueda acknowledged that wage growth is accelerating, which is a key development officials wanted to see before hiking their rates further.
Consumer price inflation in Singapore held steady in June at May’s 51-month low of 0.8%. Such had crested in September 2022 at 7.5%.
Finland reported sub-zero producer price inflation for a fourth straight month, but at -1.5% such was less negative in July than readings in June or May.
Spanish producer price inflation of +0.3% last month was at a 4-month low. Such had previously imploded from 47.0% in May 2022 to -9.9% in August 2023.
Icelandic PPI inflation of -0.6% in July was negative for a second straight month but not as much so as in June.
New Zealand’s service sector purchasing managers index in July of 48.9 was it’s highest reading since 50.3 in January. A second data release from that economy today documented growth in retail sales last quarter of 0.5% from 1Q and 2.3% compared to 2Q 2024.
Japan’s leading and coincident indicators of economic activity from June were each revised a tad lower than reported initially. Nevertheless, the revised figures constitute 3- and 4-month highs, respectively.
Czech consumer confidence in August dropped 5.1 index points to a 4-month low from July’s 46-month high. Business confidence rose 2.7 index points, in contrast, to a 38-month high.
Brazilian consumer sentiment eased to a 4-month low in August, while Belgian business sentiment this month rose to a 28-month high.
U.S. new home sales slid by a smaller-than-projected 0.6% in July to 652k.
The Chicago Fed National Activity index 0f -0.19 in July was below zero for a fourth straight month.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Ifo index of German business climate, Lagarde and Ueda, Trump voter approval ratings
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