The financial markets have spent the week digesting a potent mix of economic and political signals, all of which stem from Federal Reserve Chairman Jerome Powell’s Jackson Hole speech. What began as a week-long celebration of dovish hopes has quickly evolved into a period of uncertainty, leaving a critical question for investors: Is the market’s optimism about a Fed pivot on solid ground?
A Dovish Aftershock, but is it a Real Shift?

On August 22, Powell’s address was widely interpreted as a green light for a September rate cut. He signaled that a “shifting balance of risks may warrant adjusting our policy stance,” and crucially, he downplayed the risk of tariff-driven inflation as a “one-time shift” in prices. This sent a shockwave of risk-on sentiment across markets: equities surged, Treasury yields fell, and the US Dollar Index (DXY) experienced a sharp sell-off. The probability of a September rate cut soared to over 90%.
The Data Contradiction
However, the market’s exuberant reaction is being met by a contrasting economic reality. The release of the July Producer Price Index (PPI) on August 14 showed an unexpectedly sharp increase, providing clear evidence that President Trump’s tariffs are pushing up producer costs. This inflationary pressure serves as a powerful counterargument against a quick Fed pivot.
This week’s data only deepened the paradox:

• Resilient Manufacturing: The U.S. durable goods orders report on August 26, while negative in its headline figure, showed a strong 1.1% gain in core components. This hints at underlying resilience in the manufacturing sector, which contradicts the narrative of a rapidly weakening economy.
• Fragile Consumers: At the same time, the August consumer confidence report indicated a dip in sentiment and a rise in consumer inflation expectations. Consumers are increasingly worried about jobs and rising prices, directly citing tariffs as a cause.
  This creates a significant dilemma for the Fed and a precarious environment for the market. While the Fed has signaled a willingness to cut, the actual economic data presents a much more complicated picture, suggesting that the path forward will be far from smooth.

FX and Gold: Awaiting the Next Catalyst
The market’s mixed signals were directly reflected in the performance of key assets:

• US Dollar (DXY): The dollar’s post-Powell selloff was paused by the resilient durable goods data, causing a modest rebound. The DXY is now a battleground between dovish sentiment and economic resilience.
• EUR/USD & GBP/USD: Both the Euro and the Pound capitalized on the dollar’s initial weakness. The Euro gained ground as the market focused on a widening policy gap between a dovish Fed and a stable ECB. The Pound showed surprising resilience, a reflection of the Bank of England’s more cautious, or “hawkish,” stance.
• Gold (XAU/USD): Gold, the classic inflation hedge, has seen strong bullish momentum. Its rally is fueled by the perceived dovish Fed and the lingering threat of inflation from tariffs and other factors. As long as these themes persist, gold’s appeal remains strong.
• USD/JPY: The pair is in a state of policy divergence, where the Fed’s dovishness is set against the Bank of Japan’s nascent hawkishness, setting up the potential for a significant directional move.

Key Technical Levels for Wednesday, August 27:

• DXY: Resistance at 98.50. Support at 98.08.
• EUR/USD: Resistance at 1.1699. Support at 1.1616.
• GBP/USD: Resistance at 1.3584. Support at 1.3375.
• USD/JPY: Resistance at 148.00. Support at 147.00.
• XAU/USD (Gold): Resistance at $3375. Support at $3340.

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