The dollar declined, and the British pound rose to its highest level in more than two years on Friday after Federal Reserve Chairman Jerome Powell gave an unequivocal signal that the long-awaited cut in U.S. interest rates would come next month.
The dollar’s weakness also saw the euro rise to its highest level in 13 months, while the U.S. currency recorded its lowest level in 17 days against the yen.
In his keynote speech at the Federal Reserve’s annual economic symposium in Kansas City, Jackson Hole, Wyoming, Powell said, “The time has come to adjust monetary policy,” noting that inflation risks have diminished and downside risks to employment have increased.
Powell added, “We are neither seeking nor welcoming further easing of labor market conditions. We will do whatever it takes to support a strong labor market while making further progress toward price stability. With appropriate retrenchment of monetary policy, there is good reason to believe that the economy will return to a 2% inflation rate while maintaining a strong labor market.”
Traders continued on Friday to bet on a quarter-point interest rate cut at the Federal Reserve meeting on September 17-18, with the odds of that now at 65% after Powell’s remarks.
The euro and yen rose, weakening the dollar index, which measures the U.S. currency against a basket of six currencies, including the yen and euro. The index fell 0.81% from its late-Thursday level to 100.64, after being slightly firmer before Powell’s speech.
