Powell’s Dovish Pivot Sparks Dollar Selloff: September Rate Cut Almost Certain

Market Sentiment Overview

Fed Chair Powell delivered his most dovish Jackson Hole speech in years, effectively confirming September rate cuts and announcing a new “flexible inflation targeting” framework. This dramatic policy shift triggered massive USD selling, with the DXY plunging to fresh three-week lows below 97.60. Risk sentiment surged as markets priced in 90% odds of September easing, while hopes emerged for Russia-Ukraine peace talks following Trump’s diplomatic meetings. However, sticky inflation concerns and strong PMI data create potential headwinds ahead.

Currencies

USD Index: Jackson Hole Collapse Accelerates (97.50)

Current Trend: Strongly Bearish Market Sentiment: Very Negative

The Dollar suffered its worst Jackson Hole selloff in years after Powell’s unexpectedly dovish pivot. The DXY crashed below 97.60, marking its third consecutive weekly decline as September rate cut probabilities soared to 90% from 70% pre-speech. Powell’s acknowledgment of “rising downside risks to labor markets” and introduction of flexible inflation targeting eliminated the Fed’s “makeup strategy,” stunning markets. The new framework abandons specific economic conditions, allowing more balanced policy when inflation and employment goals conflict. Critical resistance now at 98.50, with support at 96.80.

EUR/USD: Surges Past 1.1700 on Dollar Weakness (1.1720)

Current Trend: Bullish Market Sentiment: Positive

EUR/USD exploded above 1.1700 following Powell’s dovish bombshell, erasing weekly losses and posting modest gains. The Euro gained despite mixed PMI data showing Eurozone manufacturing finally returning to growth (50.5 vs 49.8) for the first time since June 2022, while services softened to 50.7. German wage growth accelerated to 4.0% y/y in Q2, supporting ECB hawkishness. Technical indicators remain bullish with immediate resistance at 1.1730, followed by the year’s high at 1.1830. Support holds at 1.1650 and 1.1590.

GBP/USD: Breaks Above 1.3500 on USD Collapse (1.3520)

Current Trend: Strongly Bullish Market Sentiment: Very Positive

Cable capitalized on broad USD weakness to surge above 1.3500, despite UK inflation remaining sticky at 3.8% y/y. The Pound’s strength was driven entirely by Dollar selling rather than domestic fundamentals, though stronger UK PMI data (composite rose to 53.0) provided modest support. With UK markets closed Monday for Summer Bank Holiday, focus shifts to US data. The bullish technical setup remains intact with RSI approaching 60 and support from the 50-day SMA at 1.3500. Next targets at 1.3600 and July highs at 1.3681.

Stocks

S&P 500: Powell Pivot Provides Relief Rally Fuel (6,400)

Current Trend: Bullish Market Sentiment: Cautiously Optimistic

Equity markets found fresh legs following Powell’s dovish Jackson Hole speech, with the S&P 500 bouncing from its 200-day moving average support. The index faces key resistance at 6,480, with momentum indicators turning positive after the Fed pivot. Strong US manufacturing PMI (53.3 vs 49.7 expected) showed economic resilience, while services eased slightly to 55.4. Tech stocks led the recovery as lower rate expectations boosted growth valuations. However, the index remains range-bound pending next week’s critical data releases.

Nvidia: Earnings Test Ahead of $4 Trillion Valuation

Current Trend: Consolidative Market Sentiment: Cautious

Nvidia approaches its Q2 earnings (August 27) with shares trading near $185 highs and a $4+ trillion valuation raising bubble concerns. Q2 guidance calls for $45bn revenue (+/-2%), with gross margins expected to recover to 72% after China-related charges. The company faces an estimated $8bn H2 revenue loss from new US restrictions, but strong AI demand and Middle East expansion provide offsets. Data center revenue remains the key driver, with gaming also showing strength. Critical earnings test for the entire AI sector.

Commodities

Gold: Bulls Awaken on Dovish Powell (3,370)

Current Trend: Bullish Market Sentiment: Positive

Gold surged to fresh weekly highs above $3,370 after Powell’s dovish Jackson Hole remarks triggered sharp Treasury yield declines. The precious metal recovered from earlier weakness as easing geopolitical tensions (Trump-Putin meetings) had initially reduced safe-haven demand. Powell’s flexible inflation targeting framework and rate cut confirmation provided the catalyst for gold’s late-week rally. Technical indicators show increasing buyer interest with RSI above 50. Resistance at $3,400 and $3,430, support at $3,350 and $3,315.

Bitcoin: ETF Outflows Mount Despite Fed Pivot (113,200)

Current Trend: Bearish (Recovering) Market Sentiment: Mixed

Bitcoin consolidated above $111,980 support despite over $1.15 billion in ETF outflows – the highest weekly outflows in five months. BTC has declined 8% from its August 14 record high of $124,747, with weakening institutional demand and profit-taking pressuring prices. However, Powell’s dovish shift provided late-week support as lower rates typically benefit risk assets. On-chain data shows apparent demand dropped from 174,000 BTC in July to 59,000 BTC, while Open Interest remains elevated at $67 billion, suggesting overheated conditions.

Key Events This Week (August 25-29, 2025)

Major Economic Releases

Monday: UK Summer Bank Holiday (markets closed), US New Home Sales
Tuesday: US Consumer Confidence, Durable Goods Orders
Wednesday: Light calendar both sides of Atlantic
Thursday: US Q2 GDP Second Estimate, Initial Jobless Claims, Pending Home Sales
Friday: US PCE Price Index (Fed’s preferred inflation gauge), Personal Spending

Corporate Earnings Highlights

Tuesday: JD Sports Q2 results
Wednesday: Nvidia Q2 earnings (market focus), Best Buy Q2
Thursday: Dick’s Sporting Goods Q2

International Data

Friday: Eurozone flash CPI estimates (Germany, France, Italy, Spain), Japan data batch (Tokyo CPI, unemployment, retail sales), Canada Q2 GDP

Week Ahead Outlook

Powell’s Jackson Hole pivot has fundamentally altered the market landscape, with September rate cuts now almost certain. However, this week’s key test comes from Friday’s PCE inflation data, which could either validate or challenge the Fed’s dovish stance. Core PCE is expected to remain elevated, potentially creating tension with Powell’s new flexible framework.

The correlation between core PCE and core CPI (0.75 over 10 years) suggests upside risks given July’s CPI acceleration to 3.1% from 2.9%. Any significant inflation surprise could force markets to reconsider the pace of Fed easing beyond September.

Nvidia’s earnings represent a crucial test for AI valuations, while Eurozone CPI data will determine whether the ECB can maintain its pause. The combination of dovish Fed policy, sticky inflation, and geopolitical developments creates a complex backdrop requiring careful risk management.