Jerome Powell expected to give clues about Fed rate path in Jackson Hole speech

• Fed Chair Jerome Powell is due to speak on monetary policy at the Jackson Hole Symposium.
• All eyes remain on Powell's speech for fresh insights into the US interest-rate outlook.
• The US Dollar is set to rock with Powell's speech influencing market pricing of Fed policy outlook.

US Federal Reserve (Fed) Chair Jerome Powell is scheduled to deliver a speech on "Economic Outlook and Framework Review" at the annual Jackson Hole Economic Symposium on Friday at 14:00 GMT.  

Market participants will closely scrutinize Powell's speech for any fresh hints on the trajectory of monetary policy, particularly about the timing of the Fed's first interest-rate cut of the year and the potential scope and timing of subsequent rate reductions. 

His words are expected to stir markets, injecting intense volatility around the US Dollar (USD), as the world's most powerful central bank looks to steer toward a policy-easing path as early as September.  

In the July policy meeting, the Fed left the federal funds rate unchanged in the range of 4.25%-4.50%, but two policymakers dissented, with Fed Governor Christopher Waller and Fed Governor Michelle Bowman voting in favor of a 25 basis points (bps) rate cut. In a statement published a few days after the July meeting, Governor Waller explained that he dissented because he saw tariffs as a one-time price event that policymakers should "look through" as long as inflation expectations remain anchored. Governor Bowman argued that slowing growth and a less dynamic labor market make it appropriate to begin gradually moving the moderately restrictive policy stance toward a neutral setting.

The US employment data for July, however, revived concerns over worsening conditions in the labor market and fed into expectations of an interest rate cut in September. Nonfarm Payrolls (NFP) in the US rose by 73,000 in July, while NFP increases for May and June were revised down by 125,000 and 133,000, respectively. On the other hand, the latest Consumer Price Index (CPI) and Producer Price Index (PPI) data from the US hinted at sticky inflation, casting doubt about the number of rate cuts the Fed could opt for in 2025.

Against this backdrop, the US Dollar (USD) faces a two-way risk in the run-up to the highly anticipated Jackson Hole showdown.

How could Powell's speech at Jackson Hole affect the US Dollar?

Although markets widely anticipate a rate cut at the Fed's next policy meeting, they seem unsure about whether the US central bank will go for two or three cuts this year. According to the CME FedWatch Tool, there is a 33% probability of a total of 75 bps reduction in rates in 2025, against a 47% probability of 50.

In case Powell emphasizes worsening labor market conditions and adopts a cautious tone on the growth outlook, the USD could come under selling pressure with the immediate reaction. On the flip side, the USD could gather strength against its rivals if Powell downplays the disappointing employment data and reiterates that they need more time to assess the impact of tariffs on inflation before easing the policy in a steady way.

Analysts at TD Securities think that Chair Powell will communicate the Fed's lean towards easing in September at Jackson Hole and explain:

"Although there is still more data to come, we believe Powell will suggest that economic conditions support policy recalibration. Downside risks to the labor market have grown, while tariff passthrough into inflation appears slower and more manageable than previously expected."

Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for the US Dollar Index (DXY): 

"The Relative Strength Index (RSI) indicator on the daily chart moves sideways near 50 and the US Dollar (USD) Index fluctuates in a tight range at around the 20-day and the 50-day Simple Moving Averages (SMAs), reflecting a neutral stance in the near term.

"On the upside, the 100-day SMA aligns as a key resistance level at 99.00 ahead of 99.60-100.00 (Fibonacci 23.6% retracement of the January-July downtrend, psychological level) and 101.55 (Fibonacci 38.2% retracement). Looking south, support levels could be spotted at 97.50 (static level), 96.45 (end-point of the downtrend) and 95.50 (mid-point of the descending regression channel)."