Forex options traders' bullish sentiment towards the dollar has reached a three-week high. Analysts say that while Powell may open the door for a 25 basis point rate cut in September, he will not be more aggressive.
Forex options show that bullish sentiment for the dollar has risen to a three-week high, indicating that traders are betting that Federal Reserve Chairman Powell will not take an overly dovish stance on interest rate cuts.
Before Powell's highly anticipated speech at the Federal Reserve's annual Jackson Hole symposium on Friday, the so-called 'one-month risk reversal indicator' for the Bloomberg Dollar Spot Index has risen to its highest level since July 31. The dollar index is currently at its highest level since August 5 and is expected to close the week with an increase of nearly 0.8%.
"The door for a 25 basis point rate cut in September will open," said Sonja Marten, head of forex and monetary policy research at DZ Bank AG, in an interview with Bloomberg TV, "but I don't think he will take a more aggressive stance than that."
Marten noted that despite growing pressure from Trump for significant rate cuts from the Fed, Powell is likely to withstand that pressure.
She stated that Powell will "very clearly indicate that he will not take a path that may lack fundamental support under pressure from the White House."
Traders have been scaling back their rate cut bets recently: the market currently expects the Fed to cut rates by a total of 47 basis points by the end of the year, down from an expectation of 63 basis points just over a week ago.
