The US bond market stayed frozen Friday morning, as the 10-year Treasury yield didn’t move at all, stuck at 4.332%, while the 2-year nudged up by less than one basis point to 3.8%. But hey, that’s nothing. Wall Street wasn’t watching yields anyway. All eyes were locked on Jerome Powell’s upcoming speech at Jackson Hole, because traders know this is the one that sets the tone for the rest of the year. Powell’s about to walk on stage in Wyoming, where the Federal Reserve’s annual economic symposium has been going on since Wednesday. Every major central bank name is there. Traders don’t want guesses anymore; they want direction. And that’s where the dollar comes in. Traders load up on dollar strength ahead of Powell Currency markets have turned aggressive since Monday, betting Powell won’t swing dovish. The Bloomberg Dollar Spot Index showed its biggest upside skew since July 31, with one-month risk reversals jumping. The dollar also traded at its highest level since August 5, on track to close the week up 0.7%. FX desks clearly believe Powell won’t talk about cutting rates too soon. Sonja Marten from DZ Bank said, “A 25 basis-point cut next September, that door’s going to be open. But I don’t think he’s going to be more aggressive than that.” She also said he’s not likely to cave under outside pressure. That includes Donald Trump, who’s been disrespectfully calling on the Fed to slash rates deeper and faster. Marten made it clear: “He will not be pressured by the White House to go down a path that might not be fundamentally justified.” That’s the signal markets needed. And now they’re watching the dollar surge back. After a steep drop last month, when the greenback hit its lowest against the euro in nearly four years — traders have been caught holding long euro-dollar positions. That’s a problem. If Powell’s tone sparks more euro weakness, those positions will unwind fast. Marten said , “That can accelerate as these positions get closed. People have given up hope that we’re going to see $1.20 soon.” Despite the betting, there’s still uncertainty. According to the CME Group’s FedWatch tool, markets were pricing in a 71% chance of a rate cut at the Fed’s September meeting. That’s high. But it’s based on expectations that Powell might tilt dovish. Not everyone’s buying that. Nick Rees from Monex Europe warned that overreacting to any soft language could lead to a quick selloff in the dollar, but it wouldn’t last. “Undue focus” on Powell even mentioning a September cut might cause traders to jump the gun. But Rees added, “On balance, we expect the tone to be hawkish, prompting further dollar gains into the end of the week.” Get up to $30,050 in trading rewards when you join Bybit today
