Dollar Softens as Markets Await Powell’s Jackson Hole Speech; Yen Gains on Ueda’s Hawkish Remarks

The U.S. dollar weakened on Friday as traders prepared for Federal Reserve Chair Jerome Powell’s upcoming speech at the Jackson Hole symposium. Meanwhile, the Japanese yen led gains among major currencies after Bank of Japan (BOJ) Governor Kazuo Ueda reaffirmed his commitment to raising interest rates if inflation continues to meet the BOJ’s 2% target.

Central bankers are expected to play a crucial role in influencing financial markets in the coming days as the world’s most influential monetary policymakers gather in Jackson Hole, Wyoming.

The yen was a notable mover on Friday, rising 0.3% to 145.82 per dollar. Ueda, speaking in Japan’s parliament, reiterated his hawkish stance, emphasizing the BOJ’s readiness to increase rates if inflation trends persist. However, he also cautioned that market volatility could impact the central bank’s inflation outlook. The BOJ’s recent rate hike had previously triggered a significant unwinding of yen-funded carry trades, contributing to a global market selloff in early August. Despite this, most markets have since recovered.

The dollar index, which tracks the greenback against six major peers, was down 0.11% at 101.37, close to the 2024 low of 100.92 reached earlier in the week. The index is on track for its fifth consecutive week of losses.

Focus on Jackson Hole

All eyes are now on Powell’s speech at the Kansas City Fed’s annual Jackson Hole research conference, scheduled for 10 a.m. EDT (1400 GMT). Traders are keen to glean insights into the Fed’s plans for future rate cuts. Current market expectations suggest a 76% chance of a 25 basis point rate cut in September, according to the CME FedWatch tool. Traders have scaled back expectations for a larger 50 basis point cut.

Overall, markets anticipate 100 basis points of rate cuts over the next three Fed meetings. However, some analysts warn that markets may be overly optimistic and could be disappointed if Powell adopts a more cautious tone.

In other currency movements, the euro edged up 0.1% to $1.1123, close to the 13-month high it reached on Wednesday, while sterling rose 0.2% to $1.3125, just below the 13-month high it touched on Thursday.