Fed Chair Jerome Powell used his speech at the Jackson Hole symposium to pre-announce the start of the Fed's easing cycle in September. Short-dated US rates fell about 15bp into Monday's session and the DXY dollar index sold off around 1%. In effect, Powell declared the inflation battle won, with the attention now turning squarely to the US labour market. The latter featured heavily in Powell's speech, ING’s FX strategist Chris Turner notes.

A US soft landing is priced

“Notably, US one-month OIS rates price two years forward remain at their lows at 3.00%. This pricing looks consistent with a soft landing and assumes some orderly – perhaps 25bp per meeting – Fed rate cuts through to autumn 2025. Arguably near 100, the DXY prices that scenario in and for DXY to break convincingly under 100, fears of a US recession will have to build. And in the middle of all this, we have US elections in early November.”

“Therefore, much lower USD levels from here require much weaker US activity data, where focus will be given to the August jobs report on 6 September. This week sees some second-tier US activity data in the form of consumer confidence (Tuesday and Friday), plus the weekly initial claims data (Thursday) and personal income and spending data (Friday). Given Powell's speech on Friday, the release of the core PCE deflator probably takes on a less pivotal role now.”