Currency faces challenges as speculations of interest rate decreases multiply; digital currency ascends to unprecedented peak
The Australian dollar reached its highest since late July, while sterling and bitcoin also saw gains, as traders anticipate a near certainty of a Federal Reserve rate cut on September 17. The odds of a rate cut, according to market pricing and expert analysis, stand at around 75-85%.
Fed Chair Jerome Powell's recent speech at the Jackson Hole symposium opened the door to a possible rate cut, emphasizing that the decision will be data-driven and focused on the economic outlook, especially labor market conditions and inflation dynamics.
Key factors influencing the decision for a September rate cut include labor market weakness, inflation pressures, political pressure, and market expectations and reactions. Powell described the job market as in a "curious kind of balance," with signs of slowing supply and demand for workers, and rising downside risks to employment such as the possibility of sharply higher layoffs and higher unemployment.
Although inflation remains a concern, partly due to tariffs, Powell and the Fed have not ruled out a rate cut if the labor market risks materialize. Inflation is still a counterweight that cautions against a large or premature cut. Political pressure from President Trump to cut rates significantly has been rebuffed by Powell, who reaffirmed the Fed’s commitment to making decisions independently based on economic data rather than political influence.
Financial markets responded positively to Powell’s speech, with stocks rallying and Treasury yields falling, reflecting investor anticipation of a moderate 25 basis point cut rather than a larger emergency cut. The current interest rate stands at 4.25-4.50%.
Signs of a downturn in the labor market have pushed futures to bake in a series of rate cuts before the end of the year. Treasury Secretary Scott Bessent called for a "series of rate cuts" and suggested the Fed could kick off the policy easing with a half-point cut. However, even a super-sized half-point reduction is laid around 7% odds by traders.
The U.S. dollar dropped some 0.8% over the previous two sessions, while the euro hovered at $1.1712, just below its peak on July 28. The U.S. dollar index eased slightly to 97.673. Australia's dollar gained after data showed the labor market was surprisingly resilient.
Rising expectations for Fed easing combined with increasing institutional cryptocurrency investment have powered bitcoin to a fresh record peak. Corporate treasuries like MicroStrategy and Block Inc. continue to buy bitcoin. According to an analyst at Capital.com, for the markets, it's not a matter of if the Fed cuts interest rates in September, but how much.
The Federal Reserve is under intense political pressure to ease, with an executive order last week paving the way to allow crypto assets in 401(k) retirement accounts. The Fed's decision in September could have significant implications for the global economy.
References:
- Powell, J. (2025, August). Jackson Hole Economic Policy Symposium. Retrieved from https://www.federalreserve.gov/newsevents/speech/powell20250827a.htm
- CNBC (2025, August 23). Fed Funds Futures: September rate cut odds rise to 75-85%. Retrieved from https://www.cnbc.com/2025/08/23/fed-funds-futures-september-rate-cut-odds-rise-to-75-85.html
- Reuters (2025, August 24). Fed's Powell signals readiness for rate cut if data warrants. Retrieved from https://www.reuters.com/article/us-usa-fed-powell/feds-powell-signals-readiness-for-rate-cut-if-data-warrants-idUSKCN25L21G
- Bloomberg (2025, August 25). Trump Urges Fed to Cut Rates by 3 Percentage Points. Retrieved from https://www.bloomberg.com/news/articles/2025-08-25/trump-urges-fed-to-cut-rates-by-3-percentage-points
Technology's role in influencing finance and investing is evident as institutional cryptocurrency investments, particularly in bitcoin, have surged due to rising expectations for Fed easing. Amidst the anticipation of a possible Federal Reserve rate cut in September, many analysts and corporate treasuries, such as MicroStrategy and Block Inc., emphasize the impact of such decisions on the markets, stating that it's more a question of 'how much' rather than 'if' the Fed will cut interest rates.
