While the softer US jobs report at the start of August pulled the DXY Index down from its 100.3 peak, last week’s US inflation data established a near-term base at 97.6. Since then, the DXY has held close to 98, reflecting the market’s indecision ahead of Fed Chair Jerome Powell’s remarks on August 22, at the Jackson Hole Symposium. The CPI release on August 13 arrested the market’s inclination towards pricing a larger 50 bps cut at the September 17 FOMC meeting. However, by cutting the implied odds of the rate cut from 106.8% to 83.7%, the futures market rekindled doubts about the Fed’s easing path, sending the US Treasury 10Y yield above 4.30% again, and stalling the S&P 500’s post-jobs rally around 6450.
Powell will likely calibrate his message, keeping the door open for an insurance cut to avert a sharper deterioration in the labour market, while cautioning against excessive or rapid rate cuts that may undermine the need for vigilance against tariff-induced inflation.
Markets will also scrutinize how far US President Donald Trump has tilted the Fed’s internal balance away from Powell’s cautious stance. Stephen Miran – Trump’s nominee to replace Governor Adriana Kugler – is one of the architects of the “Mar-a-Lago” economic blueprint that promoted the use of tariffs, access to US markets, and security guarantees to compel foreign concessions in trade deals. Miran considers the USD structurally too strong to tilt competitiveness back in favour of domestic producers and too exposed to high US interest rates and foreign creditors. Herein lies the rationale for Trump’s obsession with replacing Powell with a like-minded candidate favouring lower rates, and US Treasury Secretary Scott Bessent’s plan to oversee deregulation later this year.
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