By Bas Kooijman, CEO and Asset Manager of DHF Capital S.A
The US dollar held broadly steady on Wednesday as investors positioned cautiously ahead of the Federal Reserve’s July meeting minutes and Chair Jerome Powell’s remarks at the Jackson Hole symposium later this week. Traders could remain sensitive after a weak payrolls report and mixed inflation data complicated the near-term policy outlook.
In addition, the July meeting featured two dissenting votes, with Christopher Waller and Michelle Bowman pushing for a quarter-point cut instead of leaving rates unchanged. That dissent underscored divisions within the Fed and reinforced the stakes for Powell’s upcoming communication.
Expectations now point to an 83% likelihood for a September rate cut, with investors also positioning for an additional cut after that this year. Traders, however, remain wary that Powell could strike a more hawkish tone, emphasizing tariff-driven inflation risks and pushing back against the degree of easing expected by the market. Last week’s hotter-than-expected producer price index data added to the uncertainty, adding to the risks.
Similarly, treasury yields were relatively stable, with the 10-year holding firm near 4.3%. Bond markets could react more decisively once the minutes and Powell’s Jackson Hole address provide clearer guidance on the trajectory of policy and inflation expectations. While dovish remarks could weigh on yields, a cautious approach could bolster both the dollar and yields.