26/08/2024 - 07:44 UTCThe US Dollar (USD), as measured by the US Dollar Index (USDX), continued its downward trend on Friday, dipping below the 101.00 level due to a shift toward riskier assets. The dollar index ended the session on Friday 0.82% lower and finished the week with significant losses of 1.69%.
This movement was prompted by the dovish tone in US Federal Reserve (Fed) Chairman Jerome Powell's speech at Jackson Hole. Despite concerns over slowing job growth, Powell and other Fed officials remain optimistic about the US labour market, with data indicating that the economy is still growing above trend. This suggests that the market may be overestimating the need for aggressive monetary easing.
Chair Powell highlighted that inflation has significantly decreased, moving the economy closer to the Fed's 2% target. He also noted a noticeable cooling in the labour market, indicating that the economy is no longer overheated. Powell emphasized that the balance of risks has shifted, with lower inflation risks but increased concerns about employment. He stated that future rate cuts would be guided by data, the economic outlook, and the balance of risks. In response to Powell's comments, market participants have raised their bets on a Fed rate cut, with a September cut now fully priced in.
U.S. stocks surged on Friday following dovish remarks from U.S. Federal Reserve Chair Jerome Powell, which solidified expectations that the central bank will cut its key policy rate in September. Following Powell's remarks, all three major U.S. stock indexes rallied, with megacap stocks such as Nvidia, Apple, and Tesla leading the gains.
On the energy front, Oil prices rose more than 2% on Friday following remarks by U.S. Federal Reserve Chair Jerome Powell, which signalled that the central bank is preparing to cut interest rates. Brent crude futures closed up by 2.48%, at $79.061 per barrel, while U.S. West Texas Intermediate (WTI) crude futures ended the day up 2.44%, at $74.921 per barrel.
This week, the data-dependent Fed will have a series of economic indicators to review before its September rate decision, including the Commerce Department's revised second-quarter GDP and the comprehensive Personal Consumption Expenditures (PCE) report, which contains the Fed's preferred inflation measure, the PCE price index.
The EUR/USD pair surged to its second-best performance of August, climbing 0.68% as the US Dollar weakened significantly. This rally came amid heightened market optimism following signals from Federal Reserve (Fed) officials that the US central bank may soon begin cutting interest rates.
According to the CME’s FedWatch Tool, current market expectations suggest a roughly 75% chance of a double rate cut at the Fed’s September 18 meeting, with most other forecasts leaning toward a single quarter-point reduction.
This week begins with a light economic calendar, but key inflation data from the EU and the US will take center stage later in the week.
Gold prices rose almost 1% on Friday, driven by a decline in the dollar and U.S. Treasury yields after comments from Federal Reserve Chair Jerome Powell signalled a likely interest rate cut in September. Powell stated that "the time has come" for the U.S. central bank to lower interest rates, noting that inflation is approaching the Fed's 2% target, which was seen as a clear indication of imminent policy easing.
Lower U.S. interest rates typically enhance the attractiveness of non-yielding assets like gold.
Oil prices finished the week in negative territory, despite a rally on Friday, as Federal Reserve Chairman Jerome Powell's indications of upcoming rate cuts boosted investor sentiment for risk assets.
The prospect of rate cuts helped alleviate some concerns about a weaker U.S. economy negatively impacting oil demand. However, the overall demand outlook remains uncertain, particularly as China, a major oil consumer, continues to experience slowing economic growth.
Despite strong near-term demand, indicated by recent government data showing a significant drawdown in U.S. oil inventories, traders remain wary that worsening economic conditions could curb demand in the coming months.
All three indexes recorded weekly gains, buoyed by last week's largest Friday-to-Friday percentage increases of the year.
In his eagerly awaited speech at the Jackson Hole Economic Symposium, Powell stated that "the time has come" to reduce the Fed funds target rate, noting that "the upside risks of inflation have diminished."
On Friday, the US 30 rose 0.91% while The US 500 and US Tech 100 added 0.82% and 0.75% respectively.
On the earnings front, Nvidia is set to report its earnings for the three months to July on Wednesday, with focus squarely on whether the firm was able to maintain its pace of stellar earnings growth on a boost from artificial intelligence.
The materials contained on this document should not in any way be construed, either explicitly or implicitly, directly or indirectly, as investment advice, recommendation or suggestion of an investment strategy with respect to a financial instrument, in any manner whatsoever. Any indication of past performance or simulated past performance included in this document is not a reliable indicator of future results. For the full disclaimer click here.
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