25.08.202509:50 Forex Analysis & Reviews: Powell Moves Toward Market and President Trump's Demands (Likelihood of Renewed Decline in #USDX and Rise in AUD/USD)

The main outcome of Federal Reserve Chair Jerome Powell's speech at the Jackson Hole symposium was not the anticipated presentation of an updated position on monetary policy parameters — which had been widely discussed in the market — but rather a more than clear signal about the likelihood of an interest rate cut in September.

Indeed, investors had already grown accustomed to the fact that since late last year, the Fed, through its chairman, consistently emphasized that there was no reason to continue lowering interest rates amid high inflation — above the 2% target — and relatively decent labor market dynamics. In fact, these two macroindicators, which serve as the Fed's main benchmarks for rate decisions, allowed monetary policy to remain unchanged through mid-summer, with the key rate held at 4.5%.

But the situation shifted significantly after the release of the report on new jobs and the downward revision of previous data, which disrupted Powell's previously harmonious view of rate levels. Stabilizing consumer inflation, deterioration in the labor market, and, it seems, direct pressure on Powell from President Donald Trump and Treasury Secretary Scott Bessent all played their part. The key outcome for markets was the unexpected signal of a possible 0.25% rate cut in September.

This truly came as a surprise. Against this backdrop, U.S. stock indices surged toward recent highs, while the dollar lost 1% in a matter of moments against a basket of major currencies. The news also fueled a sharp rise in gold prices and boosted demand for cryptocurrencies. The bond market reacted with falling Treasury yields.

Now, under these new circumstances, fed funds futures reflect an 87.3% probability of a key rate cut at the September meeting.

What can markets expect today?

Market participants are asking whether it is worth extending Friday's strong rally. I believe such chances exist. Equities may resume their gradual growth, which could be further reinforced this Friday with the release of Q2 GDP, expected to show a sharp rebound of 3% after a 0.5% decline in the prior quarter, and the quarterly core PCE index, projected to drop to 2.5% from 3.5%.

These are important data points, and if they meet or exceed expectations, they will provide yet another signal to market participants that rate cuts are coming.

Overall, the market outlook appears moderately positive, with prospects for continuing Friday's broad trend.

Forecast of the Day:

#USDX

The dollar index partially recovered on Monday as a result of short-covering, but it may resume its downward trend, first toward 97.50 and then 97.00, on expectations of Fed rate cuts. A sell level may be found around 97.73.

AUD/USD

The pair resumed its upward momentum after Friday's rally. It has every chance to continue rising toward 0.6560 after consolidating above 0.6500. A buy level may be found around 0.6510.