US recap: EUR/USD rallies as dovish Powell leaves dollar in the dumps
Aug 23 (Reuters) -The dollar index tumbled on Friday after comments by Fed Chair Jerome Powell increased confidence in the markets that the U.S. central bank would start a rate cutting cycle next month, while leaving open questions about the size of the first move and pace of subsequent easing.
Powell said it was time for policy to adjust, that the Fed did not seek or welcome further labor market cooling and that policymakers would do everything they can to support a strong jobs market as they make further progress toward price stability.
Powell said the timing and pace of cuts would depend on data, the outlook and balance of risks, which, combined with his deference to the labor market, left investors focused on the non-farm payrolls report on Sept. 6 for further clues.
Underpinning the dovish tone, Powell said that his confidence has grown that inflation is on a sustainable path back to 2%.
Adding emphasis, Chicago Fed President Austan Goolsbee said that while he's not ready to explicitly call for a rate cut -- to avoid tying central bankers' hands before the Sept. 17-18 meeting -- monetary policy is quite tight and is no longer aligned with current economic conditions.
The dollar index, which had been trading flat just before Powell's speech, subsequently fell to its lowest in more than a year, suffering its biggest one-day loss since Aug. 2 -- the day the July non-farm payrolls report showed an unexpectedly sharp deceleration in U.S. jobs growth.
EUR/USD hit its highest since July last year and GBP/USD rose to its strongest since March 2022.
U.S. Treasury yields were down 3-10bp by New York afternoon trade led by the front end, which steepened the 2s-10s curve 5bp to a less inverted -10.44bp.
Rate-cut euphoria propelled the S&P 500 more than 1% higher before it pulled back to stand 0.87% stronger by the afternoon.
Lower yields and the softer dollar had an effect on commodities: U.S. oil prices rallied 2.63%, copper gained 1.43% and gold rose 1.09%.
Heading toward the close: DXY -0.79%, EUR/USD +0.69%, USD/JPY -1.35%, GBP/USD 0.92%, AUD/USD +1.33%, EUR/JPY -0.66%, GBP/JPY -0.19%, AUD/JPY -0.08%.
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(Burton Frierson)
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