US FX WRAP: Dollar hit by Dovish Powell as G10s reap the rewards

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The Dollar was heavily sold on Friday after a surprisingly dovish appearance from Fed Chair Powell at Jackson Hole, where he opened the door to a September rate cut, without complete commitment, as he said the shifting balance of risks may warrant adjusting policy. The Chair added that policy adjustment may be warranted, with rates still restrictive, and that the situation suggests downside risks to employment rising - whereby previously he has flirted that the inflation side of the mandate is more at risk. Continuing to highlight his dovish shift, Powell added it is a reasonable base case that the inflation effect of tariffs will be short-lived, something the dovish dissenters argued in July. As such, an immediate dovish reaction was seen (Dollar downside, Stocks & Bonds upside) with money markets now fully pricing in two 25bps cut this year. Elsewhere from the Fed at Jackson Hole, Hammack (2026 voter) stuck to her usual hawkish tone, while Collins (2025 voter) did not commit to a September decision, given data is still due between now and then. DXY saw a low of 97.553 against an earlier high of 98.835

G10 FX was firmer across the board and profited off of the floundering Buck on the aforementioned Powell remarks, as opposed to much too currency-specific newsflow. Despite saying this, the Loonie saw strength after Bloomberg reports that Canada is to remove retaliatory tariffs on "many" US products, and to apply tariff exemption on many US goods under USMCA. PM Carney later confirmed this and said it will take effect from September 1st. On data, Canadian retail sales headline was in line, but ex-autos was much better than expected. USD/CAD traded between 1.3815-3924. 

The Yen gained from the tumbling US yields, which saw USD/JPY hit a low of 146.59 vs. an earlier high of 148.77. Overnight, Japanese core CPI was hotter than anticipated, but JPY saw little move. Antipodeans were buoyed from the risk sentiment, with AUD/USD and NZD/USD hitting peaks of 0.6501 and 0.5876, respectively. 

For the single-currency EUR, which was buoyed by the aforementioned theme, saw BBG sources in the EZ morning note that ECB officials are reportedly sticking with the steady-rates plan following the trade deal with the US, with officials increasingly convinced they can keep rates unchanged in September. On the data front, German GDP for Q2 was revised lower across the board, albeit this had little sway on the Euro. Note, ECB President Lagarde will partake in a panel discussion with BoE Governor Bailey and BoJ Governor Ueda on Saturday at Jackson Hole. 

22 Aug 2025 - 20:00- ForexData- Source: Newsquawk