Dollar Slumps 1% After Powell Touts Case for Interest-Rate Cuts

(Bloomberg) — The dollar plunged after Federal Reserve Chair Jerome Powell affirmed expectations that the central bank will cut interest rates next month, sparking a rally in the currencies of major global peers.
A Bloomberg gauge of the greenback fell 1% to its weakest mark since January after Powell’s remarks at the Kansas City Fed’s annual conference in Jackson Hole, Wyoming. The dollar gauge is set for a fourth week of losses, the longest such streak since April 2023.
“Powell made it clear that the focus of the Fed has shifted from inflation and into balancing its dual mandate,” said Jane Foley, head of foreign-exchange strategy at Rabobank in London, adding that “the speech contained no push back to the possibility of a larger Fed cut in September.”
The dollar’s slide prompted a surge in major peers including the British pound, Japanese yen and Australian and New Zealand dollars. Sterling rose more than 1% to $1.3230, its strongest mark since March 2022, while the yen also gained more than 1% to a session high of 144.19 per dollar. Antipodeans each rallied more than 1% versus the greenback and Treasuries rallied across the curve.
“The time has come for policy to adjust,” Powell said in Wyoming. “The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.”
The Bloomberg Dollar Spot Index has fallen some 2.5% in August, on pace for its worst monthly performance this year, amid a broader rally in Treasuries and the solidifying of bets that the Fed will lower borrowing costs next month. Traders have become steadily less bullish on the world’s reserve currency, with long positions in the derivatives market now less than a third of their peak in April. 
The gauge’s drop on Friday is the biggest since mid-November, when a soft inflation reading sent Treasury yields sliding and led traders to pile into bets that the Fed was done raising borrowing costs.
Swaps traders are now pricing in at least a quarter-point cut from the Fed at its September meeting. They expect approximately 100 basis points of total easing from the Fed this year, slightly more than before Powell’s comments. 
“This momentum of the dollar selling is likely to continue,” said Yusuke Miyairi, a currency strategist at Nomura International Plc. “We don’t have much data next week to gauge the US economic activity and inflation development until the US non-farm payrolls,” referring to one portion of the monthly jobs report due in early September. 
–With assistance from George Lei.
(Updates throughout, adds Nomura comment.)
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