Dollar Extends Losses Amidst Powell's Dovish Surprise

(RTTNews) - A markedly dovish tone in Fed Chair Jerome Powell's speech at the Jackson Hole symposium on Friday weakened the Dollar, resulting in further losses for the currency during the week ended August 22. Jerome Powell, in his speech at the Jackson Hole symposium on Friday signaled that interest rate cuts could be on the horizon.

The U.S. Dollar declined against the euro, the Japanese yen, the Swedish krona, and the Swiss franc during the week ended August 22, 2025, but strengthened against the British pound, the Australian dollar and the Canadian dollar. The six-currency Dollar Index also recorded losses. The turbulence in currency markets attributed to the Fed Chair Jerome Powell's keenly anticipated speech at Jackson Hole on Friday resulted in extreme volatility in rates, particularly on Friday.

The Dollar Index, a measure of the Dollar's strength against a basket of 6 currencies dropped 0.13 percent during the week ended August 22, 2025. From the level of 97.85 recorded at close on August 15, the index rallied to the level of 98.62 by close of Thursday. The index however whipsawed on Friday, touching the weekly high of 98.83 as well as the weekly low of 97.56. The Index eventually settled at 97.72 on Friday as markets increased expectations of a Fed rate cut in September.

In his Jackson Hole speech, Jerome Powell acknowledged that in the near term, it was a challenging situation where risks to inflation are tilted to the upside and risks to employment are to the downside. He remarked that in situations like this, the monetary policy framework demanded balancing both sides of the dual mandate.

Chair Powell acknowledged that with policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting the Fed's policy stance. He also noted that with the policy rate now 100 basis points closer to neutral than it was a year ago, the stability of the unemployment rate and other labor market measures allowed the Fed to proceed carefully as it considers changes to its policy stance.

Minutes of the Federal Open Market Committee released on Wednesday had revealed a divided Fed worried about tariffs, inflation as well as the condition of the labor market. Members agreed that recent indicators suggested a moderation in the growth of economic activity in the first half of the year. They also agreed that the unemployment rate had remained at a low level and that labor market conditions had remained solid. Members concurred that inflation remained somewhat elevated. Members also agreed that uncertainty about the economic outlook remained elevated and that the Committee was attentive to the risks to both sides of its dual mandate.

Fed fears and the dollar's resurgence had dragged down the EUR/USD pair from the level of 1.1698 at close on August 15 to 1.1606 by close of Thursday. Amidst the dollar's whipsawing fortunes on Friday, the EUR/USD pair too recorded the week's low of 1.1583 and the week's high of 1.1744 on Friday. The pair added 0.16 percent during the week, closing at 1.1717 on Friday, versus 1.1698 a week earlier. An unexpected rebound in manufacturing PMI, a lower-than-expected services PMI reading and a larger-than-expected decrease in the consumer confidence indicator also swayed sentiment for the euro during the past week.

Despite rate cut hopes dragging down the dollar, the GBP/USD pair slipped 0.18 percent during the week ended August 22 amidst fiscal risks that clouded the outlook for the sterling. The pair declined to 1.3527 on Friday from 1.3552 a week earlier. The pair traded between the week's high of 1.3571 touched on Monday and the week's low of 1.3389 recorded on Friday. Data released during the week had showed a higher-than-expected level of inflation, unexpected decline in manufacturing PMI as well as a larger-than-expected level of Services PMI.

The Australian Dollar weakened 0.26 percent against the U.S. Dollar during the week ended August 22. The pair slipped from the high of 0.6526 recorded on Monday to 0.6414 on Friday but eventually closed at 0.6490. The pair was at 0.6507 a week earlier. The Aussie's moves came amidst a dovish rate cut by the Reserve Bank of New Zealand on Wednesday as well as anxiety ahead of the Jackson Hole symposium.

The USD/JPY pair slipped 0.17 percent during the past week amidst Fed Chair Jerome Powell's dovish surprise on Friday that contrasted with a potential monetary policy tightening by the Bank of Japan. The pair dropped to 146.95, from 147.20 a week earlier. The week's trading range manifested on Friday as the pair oscillated between the high of 148.79 and the low of 146.57.

Despite the Fed Chair's acknowledgment of the potential for a rate cut, the Dollar Index has rebounded on Monday. It is currently at 97.92 versus 97.72 at close on Friday. Though markets appear to have factored in the strong expectations of a Fed rate cut in September, the GDP update due on Thursday, the PCE-based inflation readings due on Friday as well as the non-farm payrolls data due a week later are expected to be pivotal for currency markets.

The EUR/USD pair has decreased to 1.1694 from 1.1717 at close on Friday. The GBP/USD pair has also declined from Friday's level of 1.3527 to 1.3514. The AUD/USD pair is currently at 0.6496 versus 0.6490 on Friday. The USD/JPY pair rallied to 147.33 from Friday's level of 146.95 even as markets reconciled to hints of another potential rate hike by Bank of Japan.