The market remains uncertain regarding the timing of a US interest rate cut, with participants closely monitoring the release of economic data to gauge the Federal Reserve’s next steps.
The Jackson Hole Economic Policy Symposium held last week was a significant annual gathering where central bankers, policymakers, economists and scholars convened to discuss economic challenges and the policy options available.
A key focal point of the event was Federal Reserve Chairman Jerome Powell’s speech on Friday, which investors hoped would provide an insight into the Fed’s intentions regarding interest rate cuts.
Earlier in the week, minutes from the Federal Open Market Committee (FOMC) meeting were published, revealing that a majority of Federal Reserve members acknowledged ongoing inflation risks related to tariffs and were reluctant to lower interest rates.
Before Powell’s address, some policymakers sent mixed signals about the economic outlook. Some maintained that high inflation necessitated a restrictive policy from the Federal Reserve, stressing the need to prioritize inflation control. However, the market interpreted the Fed Chairman’s comments as somewhat dovish.
He highlighted the economic outlook by noting that while inflation risks are still upward-trending, there are decreasing employment risks, suggesting that a balanced approach from the Fed is necessary.
In his remarks, he stressed the importance of maintaining a cautiously balanced approach to keep pressure stable, especially compared to previous years.
Following Powell’s speech, the market began pricing in a 90% likelihood of a rate cut in September.
The speech led to a decline in US Treasury yields by approximately 5 to 10 basis points, particularly affecting short-term rates, while US stock indices also rose to close higher.
However, as the probability of a US interest rate decrease increases, the US Dollar has become less appealing and has fallen against major currencies.
Nonetheless, opinions within the market are mixed. Some economists argue that the impact of tariffs will be minimal and temporary, yet policymakers will certainly monitor its implications, particularly regarding tariff-related inflation.
As FOMC members approach their September meeting to decide on a rate cut, they will focus on the upcoming release of two key economic reports, US employment data and inflation figures.
Nonetheless, the independence of the US central banks remains under scrutiny, as the US President intends to remove Fed Governor Lisa Cook. The administration is concerned about her possible role in shaping monetary policy decisions. News of this nature tends to unsettle the market, driving investors toward safer assets, with gold emerging as a significant beneficiary.
Over the weekend, gold saw the most gain in light of the Fed Chairman’s slight inclination toward easing policy rates and Donald Trump calling for the resignation of the Fed Governor.
However, this does not ensure that the Fed will lower interest rates in September, and the market must await two crucial data to be released before the Fed’s announcement.
Currently, market sentiment about the US interest rate suggests a dovish outlook, indicating that demand for gold is likely to be strong in the coming week, with buyers seizing opportunities during price dips.
At present, the geopolitical situation appears relatively calm.
Discussions regarding tariff issues are ongoing among various countries, with several outstanding matters being addressed, hopefully leading to resolutions that could stabilise the financial markets.
Next week, the scheduled economic data includes US New Home Sales on Monday. On Tuesday, reports on US Durable Goods Orders and US Consumer Confidence will be published. Thursday will see the release of the preliminary Q2 GDP data, alongside US weekly jobless claims and US Pending Home Sales.
Finally, on Friday, data regarding the US PCE Index, as well as personal income and spending, will be made available.
WEEKLY OUTLOOK — Aug 25-29
GOLD @ USD 3372— Gold is expected to continue its upward trend. Buyers are likely to step in during price declines. The support level is around USD 3352-55, which is anticipated to hold. A breakout above USD 3395-00 could lead to a rise towards USD 3420. However, a breakdown below the support level could pose risks for a potential decline towards USD 3332.
EURO @ 1.1727— The Euro may rise slightly, but it is expected to remain below 1.1820. For further declines, it must drop below 1.1640.
GBP @ 1.3527- Pound Sterling might rise slightly, but unless it surpasses 1.3660, it will probably face selling pressure. Support levels are between 1.3440 and 1.3390.
JPY @ 146.95— The $/JPY pair faces resistance near 148.40 on the upside. If it doesn’t surpass this level, the USD may slowly decline towards 145.80, with 145.10 being the next key level to monitor. A breakout to the upside would suggest a move towards 149.20.
Copyright Business Recorder, 2025
The writer is former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper
He tweets @asadcmka
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