Powell’s Jackson Hole Shift Shakes Forex Markets
The Federal Reserve has surprised markets with a sudden change in tone. Last week’s Fed meeting minutes showed most policymakers were still focused on high inflation, suggesting interest rates could stay higher for longer. Employment risks were largely ignored in those discussions.
But things changed after Fed Chair Jerome Powell’s speech at the Jackson Hole symposium on Friday. Powell hinted that the Fed may now shift its priority toward supporting the labor market. He admitted that the balance of risks has moved, and a policy adjustment “may be warranted” if jobs data keeps weakening.
This shift comes after the Bureau of Labor Statistics (BLS) sharply revised the May and June payroll figures, cutting them by a massive 258,000 jobs. The weaker labor market signals are raising doubts about the U.S. economy’s strength.
For the forex market, this sudden change in focus has created big moves. The U.S. dollar (USD), which had been strong on expectations of higher rates, turned volatile as traders priced in possible Fed rate cuts. Safe-haven currencies like the Japanese yen (JPY) saw demand, while risk currencies such as the Australian dollar (AUD) and the euro (EUR) reacted sharply to shifts in dollar strength.
If the Fed tilts toward easing, the USD could lose ground further, supporting pairs like EUR/USD and GBP/USD. But if inflation remains sticky, the Fed may slow down any policy change, keeping the dollar supported in the short term.
Impact:
Powell’s comments could lead to higher volatility in forex markets. Traders might see bigger swings in USD pairs as focus shifts from inflation to jobs.