The US Federal Reserve Chair, Jerome Powell, addressed inflation concerns and labour market risks at a business economics conference. Powell noted slow tariff impacts might suggest persistent inflation, with recent data indicating ongoing economic growth despite increased challenges.

Monetary policy decisions will rely on current data and risk evaluations and no risk-free policy path exists. Due to tariffs, price pressures are rising, with recent data pointing to a low-hire, low-fire employment trend. Powell stressed the importance of a neutral stance as labour market risks increase.

The US Dollar Fluctuations

The US Dollar, affected by Powell’s remarks, saw fluctuations against major currencies such as the Euro and Australian Dollar. The US Dollar Index (DXY) faced losses, trading around the 99.00 level. The table provided details currency performance today, showing the USD’s strongest performance against the AUD.

With a government shutdown delaying data, Powell’s speech on monetary policy may influence the USD’s valuation. Market speculation sees a 25 basis-points rate cut in October and possibly in December. Fed officials presented varied opinions on inflation risk and the labour market, reflecting uncertainty in future policies. If Powell hints at further policy easing, the USD might face demand challenges, though past positioning suggests limited downside.

Given the current date of October 14, 2025, we are navigating a complex situation where the Federal Reserve is caught between two opposing forces. Policymakers are concerned that persistent inflation, driven by tariffs, is becoming a long-term issue. At the same time, they acknowledge that the job market is showing significant signs of weakness, justifying the rate cut we saw back in September 2025.

The concern over inflation is not without merit, as we’ve seen core PCE inflation remain stubbornly above 3.2% for the last quarter, well above the Fed’s target. The warning that slow tariff pass-through could look like persistent inflation suggests the Fed may be less willing to cut rates aggressively. This creates a risk that the market, which is pricing in more cuts, is underestimating the potential for a hawkish pause.

On the other hand, the labor market data paints a much softer picture. Looking back at the last JOLTS report from August 2025, we saw job openings fall to 8.5 million, continuing a steady decline from the post-pandemic highs we saw a few years ago. This “low-hire, low-fire” environment is exactly the kind of downside risk that could force the Fed to continue easing policy despite inflation.

Market Strategies Amid Uncertainty

For interest rate traders, this suggests caution, as the SOFR futures curve shows the market has already priced in two more 25-basis-point cuts by the end of the year. While the dovish path seems likely, the hawkish inflation language opens the door for a surprise. Options strategies on futures that would profit from either a faster pace of cuts or an unexpected hold in December should be considered.

The immediate drop in the US Dollar Index below the 99.00 level shows the market is currently focused on the dovish jobs narrative. However, this weakness could be temporary if any upcoming private inflation indicators surprise to the upside. Derivatives traders might look at short-term put options on the dollar as a hedge, while remaining alert for a potential reversal.

The ongoing government shutdown adds a significant layer of uncertainty, as we are flying blind without key official data. This makes any directional bet risky and increases the value of owning volatility. Strategies like long straddles on major pairs like EUR/USD could be beneficial, paying off if the market makes a sharp move in either direction once delayed data is released.

Looking forward, the ADP employment report will carry extra weight this month as a key private data source. The market’s main focus will be the resolution of the shutdown and the subsequent release of the delayed October inflation and employment reports. These releases will be crucial in determining whether the Fed prioritizes the softening labor market or the persistent inflation threat.

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