Yen Soars as Powell’s Remarks Spur Rate Cut Bets

The Japanese yen advanced sharply against the US dollar on Friday, as Federal Reserve Chair Jerome Powell’s remarks at the Jackson Hole Symposium fueled speculation of an impending rate cut. The USD/JPY pair retreated from a three-week high of 148.78 to trade near 146.66, marking a near 1% drop and a significant reversal for the greenback.

Powell’s address, which highlighted increasing downside risks to employment and economic uncertainty from higher tariffs, was interpreted by markets as a signal that the Fed is preparing to recalibrate its monetary policy. While he stopped short of committing to a specific action, his cautious and flexible tone prompted a strong reaction, sending Treasury yields lower and triggering a broad selloff of the US dollar.

This shift in sentiment was reflected in the CME FedWatch Tool, which now shows a 90% probability of a 25 basis point rate cut in September, a notable jump from around 70% earlier in the day. The dramatic repricing of expectations led to heavy selling of the US dollar across the board.

The US Dollar Index (DXY), which measures the greenback’s value against a basket of six major currencies, also fell sharply. It retreated from a two-week high of 98.83 to trade near 97.75, effectively erasing all of its gains from earlier in the week. The market’s quick and decisive reaction underscores the outsized influence of Fed communication on global currency dynamics.