Global Currencies Strengthen as Fed Hints at Upcoming Rate Cut

The dollar fell while the sterling and other global currencies strengthened after Federal Reserve Chair Jerome Powell indicated a likely U.S. interest rate cut next month. Traders are betting on a quarter-percentage-point cut, with some even pricing in a larger 50-basis point cut. The changes affected various currencies and highlighted shifting economic indicators.

The dollar weakened, and sterling climbed to a two-year high on Friday, following a clear signal from Federal Reserve Chair Jerome Powell that a U.S. interest rate cut is imminent next month. Powell's remarks came during his keynote at the Kansas City Fed's annual economic conference in Jackson Hole, Wyoming.

Powell stated, "The time has come for policy to adjust," noting diminished risks to inflation and increased risks to employment. This has led traders to overwhelmingly bet on a quarter-percentage-point rate cut during the Fed's Sept. 17-18 meeting, with some pricing in a possibility of a larger 50-basis point cut.

The euro and yen also rose, causing the dollar index to fall by 0.81% from late Thursday. Market reaction seemed appropriate, as Steve Englander of Standard Chartered Bank commented, suggesting that while a 50-basis point cut isn't expected immediately, it remains a possibility depending on labor market conditions. Additional comments from Federal Reserve Bank of Chicago President Austan Goolsbee indicated that U.S. monetary policy is tight and may need alignment with current economic conditions.

(With inputs from agencies.)