The dollar index is now down 0.59% at 100.797 for a two-year low.
The decline comes after the Fed chairman’s remarks gave strong hopes to the market for a strong rate cut this year due to the weakness of the economy and the labor market in particular.
Read Powell’s full remarks here: Urgent: US Federal Reserve Chairman lays the foundation for interest rate cuts soon
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The U.S. dollar fell in early European trade on Friday, as it faltered from seven-month lows, ahead of Federal Reserve Chairman Jerome Powell’s long-awaited speech at the Jackson Hole symposium.
At 04:30 ET (09:30 GMT), the dollar index, which measures the greenback against a basket of six other currencies, was trading down 0.1% to 101.245, not far from its lowest level since January 2.
Dollar weakens ahead of Powell’s speech
The dollar rebounded slightly earlier in the week, but is still recording losses of around 1% this week, heading for its fifth straight week of losses.
The weakness followed concerns about the weakening economy and expectations that the Federal Reserve is close to cutting interest rates.
The focus is now directly on Powell’s speech later on Friday on the Jackson Hole Symposium website, where he is expected to offer more signals on interest rates and the economy.
“Powell will likely use this rhetoric to prepare markets for a September rate cut, something that was fully priced and largely anticipated by the minutes of the Federal Reserve’s July meeting and recent Fed speakers,” analysts at ING said in a note.
‘The question is whether Powell will go so far as to open the door to a 50 basis point move – if not in September, then later this year.’
Feedwatch showed that markets are now pricing nearly three-quarters of the chance that the Federal Reserve will cut interest rates by 25 basis points at the September meeting, with the likelihood of a cut falling by 50 basis points.
Euro and Pound Rise on Weaker Dollar
In Europe, the EUR/USD forex pair rose 0.1% to 1.1123, not far from Wednesday’s 13-month high.
A survey by the European Central Bank on Friday showed that eurozone consumer expectations for inflation over the next 12 months remained flat for the third consecutive month in July.
ECB policymakers may use the survey as evidence of public confidence in their ability to bring inflation down to their target of 2% with interest rate cuts.
Martins Kazaks, a policymaker at the European Central Bank, said the ECB has room to cut interest rates, possibly twice, more this year as broad-based inflation remains on the downward trajectory envisioned by policymakers.
Kazachs, the governor of the central bank of Latvia, said on the sidelines of the US Federal Reserve’s Jackson Hole economic symposium: “We continue to stick to our expectations and this is consistent with the gradual decline in interest rates.”
The GBP/USD forex pair rose 0.3% to 1.3129, slightly below Thursday’s 13-month high after strong activity data for August.
Markets are now pricing more rate cuts by the Fed by the end of the year than the ECB or the Bank of England.
JPY Rises as Ueda Signs Rate Hike
In Asia, the USD/JPY currency pair fell 0.2% to 145.99, with the yen rising after Japan Bank President Ueda said short-term interest rates remain too low and should be raised further to neutral levels.
He also repeated the bank’s recent messages that it would raise interest rates further if inflation remained steady.
Oida’s comments boosted the yen, which has been in a state of recovery since the central bank raised interest rates by 15 basis points in late July.
USD/RMB fell 0.1% to 7.1372, while AUD/USD rose
