Dollar Softens After Powell Drops His Latest Update

Jerome Powell, Sara Eisen, Anchor at CNBC, Policy panel at the ECB Forum on central banking 2024. © Your Image for the ECB.

GBP/USD rose after the Chair of the Federal Reserve delivered remarks that were deemed by analysts and market participants to raise the odds of a September interest rate cut.

Stocks rose and the Dollar was broadly weaker after Jerome Powell told the ECB's forum on central banking that considerable progress had been made on inflation and that the disinflation process is back on track.

He said that if the labour market were to be "unexpectedly weak... this will also cause us to respond."

Investors are questioning whether the Federal Reserve will be in a position to cut interest rates in September, with the Dollar falling when confidence in such an outcome builds. Following Powell's comments, markets see little more than a 50% chance of a September cut.

GBP/USD has risen to 1.2676 in the wake of Powell's comments to a panel in Sintra, Portugal, having been as low as 1.2615 earlier in the day.

"The dollar traded on the soft side yesterday after Fed Chair Powell's comments in Sintra," says Francesco Pesole, FX Strategist at ING. "He sounded rather upbeat on disinflation, even though he continued to warrant caution on the next policy moves."

Michael Brown, Senior Research Strategist at Pepperstone, says Powell's remarks sounded, "at the margin, just a touch more dovish than those made of late."

Powell maintains that it is still too soon to cut interest rates and that more evidence on inflation and the labour market is needed.

Powell also indicated that he thought maintaining interest rates at restrictive levels for too long was risky for the economy.

"Commentary of this ilk appears to further open the door to a September rate cut," says Brown.

Eyes now turn to Friday's U.S. jobs report. Given Powell's pointer regarding labour market strength, a below-consensus report would likely see the Dollar drop.