The US dollar held steady on Wednesday as traders awaited Federal Reserve Chair Jerome Powell’s speech at the annual Jackson Hole symposium later this week, seeking clues about the path of monetary policy.
In contrast, the New Zealand dollar fell after the central bank cut its cash rate by a quarter percentage point to 3.0%, and revealed that its board had even discussed a larger half-point reduction.
The dollar index, which measures the greenback against six major peers, remained stable at 98.319 after touching its highest level in more than a week at 98.441 earlier in the day. Market focus is firmly on Powell’s remarks on Friday, as traders look for signals on whether he might push back against market pricing for a rate cut at the Fed’s September 16-17 meeting.
Current expectations show traders assigning about an 85% probability to a quarter-point cut next month, with a total of roughly 54 basis points in easing anticipated by year-end.
Kirstine Kundby-Nielsen, FX analyst at Danske Bank, said: “Powell will likely try to strike a balanced tone, but there is a risk he comes across as hawkish on Friday. Some of the inflation dynamics we have seen will make the Fed more cautious.”
Traders had raised bets on rate cuts after weaker-than-expected US jobs data earlier this month, alongside consumer price data showing only limited tariff-driven pressures. However, stronger-than-forecast producer prices last week complicated the outlook.
Powell himself has been hesitant to cut rates, citing expectations of higher prices due to tariffs this summer.
Later on Wednesday, the Fed is set to release minutes from its July 29-30 meeting, when it held rates steady. But these may offer little guidance, given they preceded the weak jobs report.
The New Zealand dollar slid 1.3% to $0.5815, its lowest since April 11, after policymakers also lowered their forecast for the terminal cash rate to 2.55% from 2.85% in May.
Prashant Newnaha, rates strategist at TD Securities, wrote in a client note: “The market was not expecting the bank to send such a strong dovish signal of further cuts ahead.” He now expects the cash rate to fall to 2.5% by November.
In Europe, the Swedish krona was steady after the central bank left its policy rate unchanged at 2%, in line with expectations.
The euro dipped 0.1% to $1.1636, while the dollar rose 0.1% against the Swiss franc to 0.8078 but eased 0.1% versus the yen to 147.61.
Sterling edged higher against both the euro and the dollar after UK inflation data beat expectations, leaving Britain with the highest inflation challenge among major advanced economies. Most of the rise in services inflation was driven by higher airfares, which some economists attributed to the timing of school holidays.
Chris Turner, head of research at ING, said: “The Bank of England is more concerned about food inflation, which hasn’t changed much in today’s report. We doubt the CPI print will significantly alter the Bank’s policy stance.”
In cryptocurrencies, Bitcoin stabilized around $113,897 after earlier dropping to $112,578.38, its lowest since August 3, pressured by the stronger dollar.
