Dollar gains before key Powell speech at Jackson Hole on Friday

NEW YORK – The dollar gained on Thursday before a highly anticipated speech by Federal Reserve Chair Jerome Powell on Friday will be evaluated for any new clues on whether the US central bank is likely to cut interest rates next month.

Traders ramped up bets on a cut at the Fed’s September 16-17 meeting after an unexpectedly weak jobs report for July. The risk of higher inflation as President Donald Trump’s administration enacts new trade tariffs, however, remains a wild card that is making some policymakers hesitant to ease.

The Fed’s Jackson Hole theme this year is “Labor Markets in Transition,” and “I guess it depends on how much (Powell) wants to lean on cracks in the labor market,” said Eric Theoret, FX strategist at Scotiabank in Toronto.

“Whether it’s the payrolls and the revisions, or whether it’s the claims that continue to climb higher, there is a narrative there that he can definitely push on,” Theoret said.

The dollar briefly pared gains on Thursday after data showed that the number of Americans filing new applications for jobless benefits rose by the most in about three months last week.

It later added to its rally after a separate report showed that US business activity picked up pace in August, led by a resurgent manufacturing sector that featured the strongest growth in orders in 18 months.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, was last up 0.38% on the day at 98.60, with the euro down 0.34% at USD 1.1611.

The Japanese yen weakened 0.65% against the greenback to 148.29 per dollar. Sterling fell 0.27% to USD 1.342.

Economists at Goldman Sachs expect Powell on Friday to modify his comments from the July Fed meeting, when he said that the US central bank is “well positioned” to wait for more information.

“Instead, he might note that the FOMC is well positioned to address risks to both sides of its mandate but emphasize that downside risks to the labor market have grown following the July employment report, while reiterating that tariffs are likely to have only a one-time effect on the price level,” the economists said in a report.

“We do not expect him to decisively signal a September cut, but the speech should make it clear to markets that he is likely to support one,” they added.

Powell is seen as unlikely to clearly signal a rate cut with data for August still due before the September session.

Fed funds futures traders pared expectations for a September cut ahead of Powell’s speech and are now pricing in 74% odds of a September cut, down from 82% on Wednesday, according to the CME Group’s FedWatch Tool. They are also pricing in 49 basis points of cuts by year-end, down from 54 basis points.

Atlanta Fed President Raphael Bostic said on Thursday that he still thinks the US central bank can cut its interest rate target once this year, while noting there is a lot of uncertainty around that view as the economy undergoes considerable change.

Kansas City Fed President Jeffrey Schmid said there seems no rush to cut interest rates, with inflation still above the central bank’s 2% target and the labor market still in solid shape.

Cleveland Fed President Beth Hammack also said that based on where the economy is right now, ongoing issues with inflation mean it is not the time to cut the central bank’s interest rate target.

Meanwhile, the US Justice Department plans to investigate Fed Governor Lisa Cook, with a top official informing Powell of the probe and encouraging him to remove her from the board, Bloomberg News reported on Thursday.

Trump on Wednesday called on Cook to resign, citing allegations made about mortgages she holds in Michigan and Georgia.

In cryptocurrencies, bitcoin fell 1.77% to USD 112,466.

(Reporting by Karen Brettell in New York; Additional reporting by Jaspreet Kalra in Mumbai; Editing by Mark Heinrich and Matthew Lewis)