On Friday, Fed Chair Jerome Powell set the stage for what could be a pivotal month ahead. Speaking at the annual Jackson Hole symposium, Powell confirmed a significant shift in the Federal Reserve’s policy focus: rather than solely targeting 2% inflation, the Fed will now place equal weight on the state of the U.S. labour market when setting monetary policy.
This adjustment is a clear signal that interest rate cuts are on the horizon, with September now the likely moment for the Fed to act. For markets, this announcement carried immediate consequences. The Dollar weakened across the board as traders moved to price in a looser policy environment. GBP/USD rallied up to 1.35, while EUR/USD also pushed higher to 1.17, marking one of the more decisive moves we’ve seen in recent weeks.
The decision to broaden the Fed’s mandate reflects growing concern over the slowing U.S. jobs market. While inflation has shown signs of easing, employment data has been more mixed, with jobless claims trending higher and wage growth cooling. By anchoring policy more firmly to labour market health, the Fed is signalling that keeping Americans in work is now just as critical as keeping prices stable.
What’s Ahead This Week
The final week of August offers a range of data that will likely reinforce these themes:
- Tuesday – U.S. Durable Goods Orders & CB Consumer Confidence
Orders are expected weaker, reflecting caution among businesses facing softer demand and trade uncertainty. However, consumer confidence is expected to rise, underlining the resilience of U.S. households. - Wednesday – U.S. Mortgage Applications
Property market data has become increasingly important, with high rates weighing on affordability. A slowdown here would support Powell’s message that the Fed must provide more support. - Thursday – EU Sentiment Data & U.S. GDP
The Eurozone will release consumer confidence and industrial sentiment, both forecast weaker, which could weigh on the Euro. Later in the day, U.S. GDP is expected to hold at 3%. Jobless claims will also be closely watched, particularly after last week’s rise. - Friday – Germany Unemployment & U.S. Core PCE
German unemployment is forecast to rise by 10,000, another signal of the broader slowdown in Europe. Meanwhile, the U.S. Core PCE Index—one of the Fed’s preferred inflation gauges—will help confirm whether the central bank can follow through on its September rate cut.
Final Thoughts
The Fed’s pivot towards prioritising the jobs market has reshaped the narrative for September. Currency markets are now trading firmly on the assumption that rate cuts are coming, with the Dollar likely to stay under pressure in the near term. Sterling and the Euro have both benefitted in the short run, but the real test will come with how much follow-through the Fed delivers in the autumn.
GBP/EUR 1.1579 GBP/USD 1.3457 GBP/AED 4.9453
GBP/AUD 2.0780 GBP/CHF 1.0853 GBP/CAD 1.8654
GBP/NZD 2.3045 EUR/USD 1.1607 GBP/ZAR 23.7640