While geopolitics remains at the center of market attention—namely the upcoming summit between U.S. President Donald Trump and Russian President Vladimir Putin on Friday, as well as yesterday's visit to the White House by Volodymyr Zelensky under the patronage of a large group of European leaders—investors are beginning to shift their focus toward economic issues, specifically to Federal Reserve Chair Jerome Powell's speech at the traditional Jackson Hole symposium.
Why is this final speech by Powell as Fed Chair so important to investors?
Recently, amid a clear deterioration in the U.S. labor market, market expectations of a Federal Reserve interest rate cut surged, although later they moderated somewhat. After the release of the latest consumer inflation report, these expectations climbed above 90% according to federal funds rate dynamics, but have since corrected to 83.6%. The reason was a surprise uptick in producer inflation data, which market participants suddenly began to take into account—despite having ignored them for many years.
Against this backdrop, with a visible split within the Fed over whether rate cuts are appropriate, Powell will speak at the Jackson Hole forum this Friday.
So, what can we expect from the Chair as his term as head of the central bank comes to an end? Will he signal that markets should prepare for the first rate cut of the year, or not?
Uncertainty is growing, as some Fed members now support rate cuts, while others—along with Powell himself—are reluctant to move in that direction. Market participants are also unsure whether President Trump will succeed in pressuring the Fed to soften monetary policy and abandon the 2% inflation model. But if Powell hints in Jackson Hole that rate cuts are possible—rather than once again "muddying the waters" with statements that the outlook is still unclear and that it is too early to discuss such moves—markets will react enthusiastically. The first to benefit will be the U.S. stock market, which, despite sitting at historical highs, could confidently continue its upward trajectory, supported by a strong inflow of foreign capital seeking a safe haven amid geopolitical and economic risks in other parts of the world.
In this scenario, the U.S. dollar will inevitably come under pressure and could briefly fall below the 97.00 level on its index. This should also support demand for cryptocurrencies traded against the dollar and for gold. However, I would not expect a significant decline in the dollar in the Forex market, primarily because the currencies in the dollar basket are themselves under pressure from economic and financial issues in Europe and other regions. Thus, any dollar decline is likely to be local and limited.
What can we expect in markets today?
I believe consolidation is likely ahead of Powell's Jackson Hole speech, since so much will depend on his words and the Fed's broader stance on rates. Overall, I continue to view the market outlook as moderately positive.
The cryptocurrency continues to trade within a broad sideways range amid expectations of a possible Fed rate cut at the September meeting. Any hint from Powell about such a move could boost demand for tokens, including Bitcoin. This could drive its price up to 118,530.00, provided it holds above the 114,810.00 level from a technical perspective. A suitable entry level for buying could be around 115,747.50.
Gold prices are also trading in a wide range. A dovish outcome from Powell's speech could push the "yellow metal" higher toward 3,373.00, provided it holds above 3,328.15. A suitable entry level for buying could be around 3,344.70.
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