How jobless claims and business data shape markets before Powell’s speech

The U.S. dollar strengthened on Thursday driven by key economic data ahead of Federal Reserve Chair Jerome Powell’s widely anticipated speech at the Jackson Hole symposium on Friday.

Investors are closely watching the interplay of jobless claims and business activity to gauge future monetary policy moves.

Recent jobless claims saw the largest increase in three months, signaling some softness in the labor market. This uptick unsettled trader sentiment initially, prompting a brief dip in the dollar.

However, later reports highlighted a pickup in U.S. business activity, especially in manufacturing, which saw the strongest orders growth in 18 months, reigniting dollar gains.

How jobless claims influence market expectations

Jobless claims are often viewed as a direct indicator of labor market health. The recent rise has caused some market participants to speculate that the Fed might lean toward cutting interest rates to support employment.

This sentiment is reflected in futures markets, where traders price in about a 74% chance of a rate cut at the Fed’s September meeting.

However, some Fed officials remain cautious. Atlanta Fed President Raphael Bostic supports a rate cut this year but voices uncertainty, while other officials like Kansas City’s Jeffrey Schmid and Cleveland’s Beth Hammack emphasize persistent inflation and a solid labor market as reasons to hold rates steady.

Did you know?
The dollar index (DXY) tracks the greenback’s strength against a basket of six major currencies including the euro, yen, and pound.

The significance of US business activity

Contrasting the soft labor data, August’s business activity is on the rise, led by manufacturing strength. The surge in new orders suggests that economic momentum remains resilient, even in the face of potential rate cuts and trade uncertainties.

This resilience complicates the Fed’s decision-making process as it balances growth against inflation risks.

The dollar index (DXY), which tracks the currency against a basket including the euro and yen, ended the day up 0.38% at 98.60. Currency pairs reflected this momentum, with the euro falling to $1.1611 and the Japanese yen weakening to 148.29 per dollar.

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Market anticipation ahead of Powell’s speech

Jerome Powell’s speech is expected to address these mixed signals, with economists predicting a nuanced message. Goldman Sachs expects Powell to acknowledge increased downside risks in the labor market highlighted by the recent jobless claims while cautioning that tariffs likely contribute only a one-time effect on prices.

Markets do not expect a clear signal of a rate cut but anticipate that Powell will make them comfortable with the possibility.

As Powell prepares to speak, investors remain poised for clues on monetary policy direction amidst an evolving economic backdrop marked by rising jobless claims and persistent manufacturing strength.