Dollar forecast in focus as Powell takes stage at Jackson Hole: Forex Friday

The dollar has been creeping higher in recent days. The key question is whether this is a sign of things to come, or investors have simply been trimming their short dollar bets ahead of Jerome Powell’s much-anticipated speech at Jackson Hole later today. Granted, a touch of optimism in US business confidence as reported in the PMI data yesterday, as well as those hot PPI inflation measures last week, has prompted traders to reassess just how aggressive the Fed might be with rate cuts in September. Still, it’s hard to see the greenback pushing significantly further in the near term. Once Powell gives us some direction, I would expect the dollar to continue in that direction until the release of more US data next week. Among them, consumer confidence (Tuesday) and core PCE index (Friday) are the most important. Looking further ahead, the August data releases of the nonfarm payrolls on September 5 and CPI on September 11 will be the most important macro pointers in as far as the dollar forecast and direction is concerned.

 

All eyes on Powell: What to watch out for today

 

Markets have been adjusting expectations for the 17 September FOMC meeting. A couple of weeks ago, following those disastrous jobs reports and revisions, investors were fully expecting a 25 basis point cut with some suggesting that even a 50 bps was on the cards. In recent days however, those expectations have been trimmed back, giving the dollar a modest lift. Yesterday’s S&P PMI data for August added to the shift: both manufacturing and services saw an improvement, sending the composite PMI to its highest level since December. On the face of it, those numbers don’t exactly strengthen the case for the President’s call for emergency cuts. Doves at the Fed, however, continue to argue that precautionary easing is needed to prevent a sharper rise in unemployment.

 

Powell’s remarks at 15:00 BST are therefore pivotal as far as the dollar forecast is concerned. But will he give the signal the markets are looking for? The Fed Chair may prefer to stay close to the script and keep September’s decision tied to upcoming data. Three major data releases are on the way ahead of the September 17 FOMC meeting: Core PCE next Friday, non-farm jobs report on 5th September and CPI on 11th September. If he does sound cautious, this may frustrate those hoping for a clearer signal, though I can’t imagine him ignoring the sharp downward revisions to recent payrolls. In any case, I doubt that the markets will push lower the probability of a September beyond a coin flip, which should keep the dollar’s upside limited.

 

Dollar forecast: Consumer Confidence, GDP and core PCE coming up

 

• CB consumer confidence (Tuesday): This is a survey of about 3,000 households which asks respondents to rate the relative level of current and future economic conditions. Several other survey-based measures of consumer confidence have deteriorated in recent months. Will that trend continue? If there is a rebound, this would bode well for the US dollar forecast.

 

• US Prelim GDP (Thursday): This is the second estimate of growth for the second quarter. The advanced estimate was 3.0% annualised growth. But following those negative job revisions, could we see a downward revision in GDP too? Forward-looking markets are unlikely to pay too much attention to this GDP print unless we see a significant revision.

 

• Core PCE price index (Friday): This is the Fed’s preferred gauge of inflation. After a weaker CPI and a significantly hotter PPI report, it became apparent that businesses are eating much of the tariff costs instead of passing them onto the consumer. The Fed has been hesitant to cut rates for this reason, but if they perceive tariff-driven price pressures as being temporary, then we could see 2-3 rate cuts in the coming FOMC meetings.

 

Dollar forecast: EUR/USD likely to be benefit most if Powell is dovish

 

The single currency has slipped lower, weighed down both by the dollar’s rebound and the lack of progress on Ukraine. The focus today is firmly on Powell. Should he manage to tip market expectations back towards a coin-flip for September easing, EUR/USD could be forced down to the 1.1500/1.1520 support area. That remains the key level to watch and I doubt it will go much lower than that in the near-term.

 

But any clear shift in his tone to more dovish side of things could propel the EUR/USD back towards the 1.18s area, eventually paving the way for 1.20.  The longer-term euro forecast is positive given the fact that the ECB is mostly done with rate cuts and Germany is unleashing a big fiscal programme. The stimulus may begin to boost economic activity in the latter parts of this year, but the primary effects are expected to be felt more significantly in 2026 and beyond.

 

Dollar index (DXY) technical analysis: Key levels to watch

 

 

The DXY chart has made a few higher lows since bottoming at 96.37 in July. But while 100.00 remains intact, it is far too early to turn tactically bullish on the dollar forecast. Near-term resistance comes in at 98.95. Near-term support is seen around the short-term trend line circa 98.10 area. Below that 97.90 is the next level followed by 97.10, before the focus turns to the July low again.

 

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R