EUR/USD skyrockets during the North American session after Federal Reserve (Fed) Chairman Jerome Powell leaned dovish at his Jackson Hole speech, opening the door for a resumption of the easing cycle. The pair trades at 1.1718, up by 0.97%.

Market participants began to price in a Fed rate cut in September as the Fed Chair Jerome Powell said that "The stability of the unemployment rate and other labor market measures allows us to proceed carefully as we consider changes to our policy stance."

He added that there's a "reasonable base case" to think that tariffs would create a "one-time" increase in inflation. However, he remained cautious, emphasizing that risks of inflation are tilted to the upside and risks to employment to the downside.

Following Powell's remarks, traders increased their bets that the Fed will reduce rates at the September meeting, as the CME FedWatch Tool reveals an 85% chance up from 72% a day ago of a 25 basis points rate cut.

Despite this sudden shift, the outcome of the September meeting is yet to be certain. Before the monetary policy decision, two inflation reports await the Core Personal Consumption Expenditures (PCE) Price Index for July, and August's Consumer Price Index (CPI) and August's Nonfarm Payrolls.

Two red-hot inflation reports and strong employment data could prevent the Fed from cutting rates, pushing that decision towards the last quarter of 2025.

Source: Fxstreet