The US dollar held steady after a near 1% slide as markets recalibrated expectations for US monetary policy. Futures priced an almost 90% chance of a September rate cut as investors reacted to dovish Fed guidance. The guidance noted low unemployment but building labor-market risks, continued restrictive policy, and structural shifts from tax, trade, and immigration. Treasury yields rose slightly, stabilizing after a sharp retreat amid expectations of imminent easing. Markets await the second Q2 GDP estimate and July PCE; stronger growth or sticky inflation could bolster the dollar, while softer readings could further pressure it.
In his speech, Powell highlighted that while unemployment remains low, risks to the labor market are building and policy is still restrictive. He also pointed to shifts in tax, trade, and immigration policies as structural forces reshaping the outlook. The comments reinforced the view that the Federal Reserve is moving cautiously but may soon recalibrate its stance, weighing down on the greenback.
Markets interpreted the address as a clear dovish signal, with futures now pricing an almost 90% probability of a September rate cut. This reflects growing conviction that restrictive policy is no longer warranted, particularly as risks tilt toward slower growth and weaker labor dynamics. Treasury yields rose slightly on Monday, stabilizing after the prior session's sharp retreat as the market reacted to Powell's guidance and the expectation of imminent policy easing. Investors could wait for confirmation from incoming data, which could generate additional volatility and sharp moves.
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