Dollar Holds Steady, Asian Stocks Mixed as Markets Await Powell's Speech at Jackson Hole

Economic

Forex

Summary:

The U.S. dollar remained stable ahead of Jerome Powell's highly anticipated speech at Jackson Hole, as investors weigh the likelihood of a Fed rate cut..

Mixed Performance Across Asian Markets

On Thursday, the U.S. dollar hovered below a one-week high, while Asian stock markets displayed mixed results as investors prepared for a potentially market-moving speech by Federal Reserve Chairman Jerome Powell at the Jackson Hole symposium. The dollar index stood steady at 98.252, having touched a high of 98.441 earlier in the week. Japan’s Nikkei dropped by 0.6%, retreating from its record high, while South Korea’s KOSPI gained 0.9% after hitting a six-week low on Wednesday. Australian stocks climbed 0.6%, reaching a new all-time high, while mainland Chinese blue chips rose 0.5%, though Hong Kong’s Hang Seng index remained flat.

The primary focus for investors is Powell’s speech on Friday, where they hope to gain insights into the Fed's stance on interest rates. Market participants are pricing in an 80% chance of a 25 basis point rate cut at the Fed’s meeting on September 16-17, but doubts have emerged over whether the Fed will pivot as aggressively as the market expects. Traders had ramped up bets for a rate cut following a weak jobs report in early August, but a stronger-than-expected producer price index (PPI) has complicated the picture. Powell has previously shown reluctance to cut rates, citing the potential impact of tariff-related inflationary pressures.

Political Tensions and Pressure on the Fed

In addition to economic data, the market is also responding to external pressures on the Fed. U.S. President Donald Trump has continued his criticism of Powell, calling for rate cuts and even pushing for the resignation of Fed Governor Lisa Cook. Trump’s nomination of Stephen Miran as a potential Fed Governor, who is expected to support lower rates, further adds to the political pressure on the central bank. These developments have raised concerns about the Fed’s independence, and while the dollar has remained relatively stable, the broader implications of Trump’s actions could be far-reaching for monetary policy.

U.S. Treasury yields remained steady at 4.2965%, while Japanese government bond yields inched higher, with the 20-year yield reaching its highest level since 1999. The move came amid increased fiscal spending concerns and political uncertainty in Japan. The euro and British pound were little changed against the dollar at $1.1647 and $1.3458, respectively. Bitcoin showed signs of recovery, rising to $114,690, after dropping to a 2.5-week low earlier in the week.

Oil Prices Edge Higher Amid Strong Demand Outlook

Oil prices gained, supported by larger-than-expected declines in U.S. crude and fuel inventories, signaling strong demand. Brent crude rose 0.5% to $67.19 per barrel, while U.S. West Texas Intermediate (WTI) crude climbed 0.6% to $63.10 per barrel. These price movements align with expectations for steady demand, despite the broader market uncertainty surrounding geopolitical and economic factors.

With Powell's speech at Jackson Hole looming, markets are holding their breath for any signs of clarity regarding the Fed's next moves on interest rates. While the dollar remains relatively stable, the uncertainty surrounding future monetary policy has left investors cautious, especially as political pressures mount. As the symposium unfolds, all eyes will be on Powell's remarks, which could either reinforce or challenge market expectations for a rate cut in September.

Source: Reuters

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Winkelmann

Forex

Economic

Key Highlights

● GBP/USD seems to be forming a double top pattern at 1.3590.

● A declining channel is forming with resistance at 1.3510 on the 4-hour chart.

● Bitcoin declined below the $118,500 and $115,500 support levels.

● Ethereum started a downside correction and traded below $4,250.

GBP/USD Technical Analysis

The British Pound failed to continue higher above 1.3590 against the US Dollar. GBP/USD seems to be forming a double top pattern at 1.3590 and is at risk of a bearish reaction.Looking at the 4-hour chart, the pair corrected some gains and traded below the 1.3525 support level. There was a move below the 23.6% Fib retracement level of the upward move from the 1.3139 swing low to the 1.3594 high.

GBP/USD Charts Signal Trouble, Will Bears Dominate The Market?_1

However, the pair is still above the 100 simple moving average (red, 4-hour) and the 200 simple moving average (green, 4-hour). On the downside, immediate support is 1.3450.The next key support sits at 1.3420 and the 100 simple moving average (red, 4-hour). Any more losses could send the pair toward the 61.8% Fib retracement level of the upward move from the 1.3139 swing low to the 1.3594 high at 1.3310.

On the upside, the pair now faces resistance near the 1.3510 level and a declining channel. The next key resistance sits near 1.3540. A close above 1.3540 could set the pace for another increase. In the stated case, the pair could rise toward 1.3590, above which the bulls could aim for a move toward 1.3680.

Looking at EUR/USD, the pair started a downside correction, but the bulls were able to protect the 1.1600 support.

Upcoming Key Economic Events:

● Euro Zone Manufacturing PMI for August 2025 (Preliminary) – Forecast 49.5, versus 49.8 previous.

● Euro Zone Services PMI for August 2025 (Preliminary) – Forecast 50.6, versus 51.0 previous.

● UK Manufacturing PMI for August 2025 (Preliminary) – Forecast 48.3, versus 48.0 previous.

● UK Services PMI for August 2025 (Preliminary) – Forecast 52.0, versus 51.8 previous.

● US Manufacturing PMI for August 2025 (Preliminary) – Forecast 49.5, versus 49.8 previous.

● US Services PMI for August 2025 (Preliminary) – Forecast 54.2, versus 55.7 previous.

● US Initial Jobless Claims – Forecast 225K, versus 224K previous.

Source: ACTIONFOREX

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Gerik

Economic

Renewable Energy Push Leads to Emission Reduction

China's carbon dioxide emissions dropped by 1% year-over-year in the first half of 2025, according to a new report from the Centre for Research on Energy and Clean Air (CREA). The power sector was the primary driver of this reduction, with significant contributions from the steel and cement industries. This decline was largely due to a surge in renewable energy generation, as new wind turbines and solar panels outpaced electricity demand growth. As a result, thermal power plants burned less coal, reducing emissions in the power sector by approximately 3%, according to Lauri Myllyvirta, lead analyst at CREA.

The first five months of 2025 saw a record increase in renewable energy capacity. However, a June 1 policy change that is expected to lower profits for wind and solar farms may slow the pace of new installations in the second half of the year. Despite this, Myllyvirta anticipates that the boost from renewable energy will be sufficient to continue reducing emissions in the power sector into 2026.

Slump in Property Sector Helps Cut Emissions in Cement and Steel

The prolonged slump in China’s property sector also contributed to reduced emissions in the cement and steel sectors. However, the drop in steel emissions was less than expected, as mills often prioritize cost-effective, coal-based production over more efficient but more expensive electric arc furnaces.

While emissions fell in several key sectors, the chemicals industry emerged as a new hotspot for pollution. Emissions from the chemicals sector surged due to the continued reliance on coal for producing synthetic fuels and building blocks for plastics. Coal use in this sector increased by 20% in the first half of the year, building on a 10% rise in 2024. Coal-based chemical processes are significantly more polluting than traditional petroleum-based methods, with the sector emitting 690 million tons of CO2 in 2024 around 410-440 million tons more than would have been released by conventional chemical processes.

While China has made significant strides in reducing emissions from the power, steel, and cement sectors through renewable energy adoption, the rising emissions from the chemicals sector highlight a growing challenge. The country faces a delicate balance between transitioning to cleaner energy and addressing the increasing environmental impact of certain industrial sectors, particularly those heavily reliant on coal. The future of China’s emission trajectory will depend on how it navigates these new pollution hotspots while continuing to expand its renewable energy infrastructure.

Source: Bloomberg

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Economic

Commodity

Stronger-than-Expected Inventory Withdrawals Support Prices

Oil prices saw modest gains on Thursday, driven by larger-than-expected withdrawals from U.S. crude and fuel inventories. Brent crude futures rose 0.19%, settling at $66.97 per barrel, while U.S. West Texas Intermediate (WTI) crude futures increased by 0.24% to $62.86 per barrel. This follows a 1.6% increase in Brent and a 1.4% rise in WTI on Wednesday. These price movements reflect market optimism, as the U.S., the world’s largest oil consumer, reported significant inventory drawdowns that suggest sustained demand for oil and fuels.

The U.S. Energy Information Administration (EIA) reported that crude oil inventories fell by 6 million barrels to 420.7 million barrels last week, well above analysts’ expectations of a 1.8 million-barrel draw. Gasoline stocks also saw a larger-than-expected decline of 2.7 million barrels, compared to the anticipated 915,000-barrel drop. These figures, coupled with a jump in the four-week average of jet fuel consumption to its highest level since 2019, highlight continued strong demand, especially during the summer travel season. Daniel Hynes, senior commodity strategist at ANZ, noted that the rebound in crude prices was fueled by these signs of strong demand in the U.S.

Geopolitical Tensions Weigh on Market Sentiment

Despite the bullish demand data, some bearish sentiment lingers in the market due to ongoing geopolitical tensions. Traders are closely monitoring efforts to resolve the war in Ukraine, with Russia’s recent remarks suggesting that peace negotiations without its participation are futile. The prolonged conflict continues to put pressure on the oil market, as Western sanctions on Russian oil remain in place, with the possibility of additional sanctions and tariffs on Russian oil buyers.

U.S. President Trump’s announcement of a 25% tariff on Indian goods due to their continued purchase of Russian oil has added to the market uncertainty. Meanwhile, Russian officials remain committed to supplying crude to willing buyers, with India resuming its Russian oil purchases after discounts widened. The market is caught between these geopolitical tensions and the ongoing supply-demand dynamics, making the outlook for oil prices more volatile.

While strong U.S. demand signals have provided some support to oil prices, the market remains under the shadow of geopolitical uncertainties, particularly related to Russia and the ongoing conflict in Ukraine. As supply chains remain influenced by political actions and sanctions, traders will continue to watch for developments in the Russia-Ukraine situation, which could further impact global oil prices.

Source: Reuters

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Economic

Forex

Political Pressure on the Federal Reserve

The U.S. dollar experienced only minimal movement on Thursday, despite fresh political pressure on the Federal Reserve. President Donald Trump intensified his criticism of the central bank ahead of Jerome Powell's highly anticipated speech at Jackson Hole. Trump has called for the resignation of Fed Governor Lisa Cook, citing allegations from his political allies regarding her personal mortgage holdings. While Cook has firmly resisted the calls to step down, this new wave of criticism raises concerns about the Fed's political independence. However, analysts argue that these tensions have little immediate effect on U.S. monetary policy.

The dollar’s response to these developments remained muted, reflecting that the market is not yet overly concerned about the political developments surrounding the Fed. The Japanese yen maintained its recent gains, holding steady at 147.41 per dollar, while the euro also saw minimal fluctuations at $1.1642. The British pound was relatively stable at $1.34535, with the dollar index measuring the U.S. currency against six other major currencies also holding firm at 98.301.

Impact of Trump's Criticism on Fed's Independence

Trump’s repeated critiques of Powell for his reluctance to cut interest rates have raised investor concerns about the Fed's autonomy. Investors are now speculating that Trump may replace Powell with a more dovish chair once his term expires in May 2026. The possibility of a Fed governor resignation, such as that of Cook, would allow Trump to appoint another member who might be more inclined to support lower interest rates. Such political interference could undermine the credibility and independence of the Fed, potentially weakening the dollar's status as a safe-haven currency and steepening the yield curve.

The primary focus this week remains on Powell's speech at the Jackson Hole Economic Symposium, where markets hope to gain insight into the Fed's stance on interest rates. Investors are eager to see if Powell will align with market expectations for a rate cut at the Fed's September 16-17 meeting. Currently, traders are pricing in an 82% chance of a 25 basis point rate cut, although recent inflation data has tempered expectations of a larger 50 basis point cut.

Possible Disappointment in Powell's Dovish Signals

While markets are anticipating dovish signals from Powell, analysts caution that they may be disappointed. Some suggest that Powell may not provide clear guidance on rate cuts, especially given the uncertainty around the economic impact of Trump's tariffs on inflation. If Powell refrains from indicating a more dovish stance, there could be significant adjustments in market expectations for a September rate cut.

The New Zealand dollar faced significant losses, dropping to its lowest level since April at $0.58205, following the Reserve Bank of New Zealand's decision to cut interest rates. Meanwhile, the Australian dollar also experienced a slight decline, falling 0.13% to $0.64245, hovering near a two-week low. These movements reflect broader currency market dynamics amid global rate cut expectations and central bank actions.

With concerns over political influence on the Fed and uncertainty surrounding the impact of recent economic data, all eyes are on Jerome Powell’s speech. Any hints of a rate cut or dovish shift will likely influence market sentiment and the dollar’s trajectory. However, investors remain wary, knowing that Powell’s remarks could either reinforce or dispel the current market expectations for a September rate cut. As the situation evolves, the market’s response will be crucial in determining the Fed’s next steps and the future direction of the dollar.

Source: Reuters

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Economic

Tech Rally Leaves Pension Funds Behind

Pension funds have begun to confront the reality that they’ve missed out on one of the strongest stock market rallies in recent years. With tech giants like Nvidia and Microsoft reaching record highs, many institutional investors find themselves underexposed to these companies due to active managers’ preference for avoiding high-priced tech stocks. This underexposure has led to growing concerns about performance gaps, as these tech stocks have significantly outperformed other sectors, leading to a strong demand for tailored strategies known as “completion portfolios.”

Completion portfolios have gained significant traction in recent months, as pension funds seek ways to "plug the gaps" left by their traditional active managers. These portfolios are designed to add the missing exposures to certain market segments, such as large-cap tech stocks, without directly chasing returns. Instead, they aim to reduce the risk of underperformance relative to key benchmarks, like the S&P 500. Asset managers like Russell Investments, Pimco, and Queensland Investment Corporation, which oversee a combined $2.5 trillion, have reported a notable rise in demand for these solutions. Russell Investments, in particular, saw a marked increase in the adoption of completion portfolios over the past 18 months, highlighting how institutional investors are adjusting to the growing concentration in the market, especially within the tech sector.

How Completion Portfolios Work

The completion portfolio strategy typically involves pooling the various holdings of a pension fund's active managers, identifying where the portfolio falls short of a benchmark, and then using instruments like derivatives or baskets of stocks to fill in these missing exposures. The goal isn’t to chase market returns but rather to align the portfolio’s composition more closely with the broader market, thereby minimizing the risk of deviation.

Mercer Superannuation Australia Ltd. and LegalSuper, two pension funds with substantial assets under management, have turned to completion portfolios as a means of mitigating underperformance caused by underweight positions in large U.S. technology companies. Graeme Miller, Chief Investment Officer of Mercer, noted that most active managers have been significantly underweight in tech stocks, which has impacted returns. LegalSuper echoed these concerns, stating that using completion portfolios has helped mitigate the active risk associated with their traditional investment strategies.

Mixed Results for Larger Funds

While some funds have seen positive results from using completion portfolios, larger funds like AustralianSuper, which manages A$388 billion in assets, have not escaped the challenge of underexposure to megacap U.S. tech stocks. Despite utilizing completion portfolios, AustralianSuper cited lackluster returns in the previous fiscal year, which they attributed to their external managers' underweight positioning in tech.

Not all pension funds are sold on completion portfolios. Mark Rider, CIO of Brighter Super, a fund with A$35 billion in assets, is cautious about the strategy, believing that completion portfolios could override opportunities for generating alpha outperforming the market. Other institutional investors have preferred using completion portfolios within fixed income, particularly when bond managers focus on corporate debt over U.S. Treasuries, creating a mismatch with benchmarks.

Completion portfolios have become an essential tool for pension funds trying to keep pace with a market increasingly driven by a small group of tech stocks. With the "Magnificent Seven" now accounting for over 30% of the S&P 500, this shift in market concentration has forced institutional investors to rethink their strategies. While not without their challenges, completion portfolios offer a solution to help investors avoid the risks of market drift and underperformance in an increasingly tech-dominated landscape. As the strategy continues to evolve, it is likely to become more widespread across asset classes, addressing risk across stocks, bonds, and commodities.

Source: Bloomberg

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Forex

Economic

The U.S. dollar drifted on Thursday as investors fretted about the Federal Reserve's independence after yet another attack from President Donald Trump ahead of remarks from Chair Jerome Powell later this week that could influence the outlook for rates.Trump called on Fed Governor Lisa Cook to resign on the basis of allegations made by one of his political allies about mortgages she holds in Michigan and Georgia, intensifying his effort to gain influence over the U.S. central bank.

Cook said she had "no intention of being bullied to step down" from her position at the central bank. Trump has also told aides he is considering trying to fire Cook, the Wall Street Journal reported on Wednesday."It has the potential to raise questions around the Fed's oversight and regulatory functions but it has little to no near-term monetary policy implications," said Prashant Newnaha, senior Asia-Pacific rates strategist at TD Securities.

That explained the relatively muted reaction in the currency markets to the news as the dollar initially dipped on the news but was mostly calm into the Asian session.The Japanese yen held onto gains made in previous sessions and was little changed at 147.41 per dollar, while the euro was steady at $1.1642. Sterling last fetched $1.34535.That left the dollar index, which measures the U.S. currency against six other peers, steady at 98.301.

Trump has repeatedly criticised Powell for being too slow to cut rates, stoking investor worries about the central bank's independence and its credibility.Investors expect Trump will replace Powell with a more dovish appointment when his term ends in May. Trump earlier this month said he would nominate Council of Economic Advisers Chairman Stephen Miran to serve out the final few months of a vacant Fed seat after Adriana Kugler unexpectedly resigned.

Kristina Clifton, a senior economist at the Commonwealth Bank of Australia in Sydney, said if Cook resigns it would create another opening for Trump to appoint a Fed Governor who will vote to lower interest rates."Perceived political interference in the Federal Reserve can undermine its independence, steepening the yield curve and denting the USD's safe haven status."

POWELL SPEECH

The main focus this week has been on whether Powell will push back against market expectations for a rate cut at the Fed’s September 16-17 meeting when he speaks on Friday at the Jackson Hole meeting, following a weak jobs report for July."Markets are adamant that recent labour market data necessitates some policy calibration and are expecting Chair Powell to tip his hat in that direction," TD's Newnaha said.