The U.S. dollar traded sharply higher against all of the major currencies on Thursday on the back of stronger data. There was an upward revision to second quarter GDP and while the increase was less than expected, the direction of the adjustment was positive for the greenback. Jobless claims ticked up but the more closely watched 4 week average dropped to its lowest level since the pandemic began. All eyes are on Friday’s Federal Reserve Jackson Hole symposium. We heard from a few central bankers this morning and their comments were relatively hawkish. Fed President George said it is time to begin adjusting accommodation while Fed President Bullard called on the Fed to get going on taper and finish in the first quarter of 2022. Both are non-voting members of the FOMC this year but it is clear there are policymakers like Bullard who do not share Powell’s view that inflation will moderate.
 
Fed Chairman Jay Powell speaks at 10am ET / 14 GMT on Friday and investors will be watching for answers to 3 key questions:
 

  1. Will taper begin in September?
  2. Is Delta or inflation the bigger concern?
  3. What does the central bank’s post pandemic policies look like?

 
Jackson Hole is an important venue for Federal Reserve policies.  At last year’s conference, Powell announced that they would no longer raise interest rates on labor market and inflation targets alone. They wanted evidence that prices were rising sustainably which could mean allowing CPI to exceed their 2% target for a period of time.
 
A month ago, investors expected the Fed to set out details for reducing bond purchases at Jackson Hole but the rapidly spreading Delta variant complicates the central bank’s policy plans. On the one hand, the labor market recovery is strong and inflation is on the rise but on the other, lockdowns and new restrictions in other nations poses a risk to the global recovery. Evidence is growing that vaccine efficacy is waning and a third booster will be needed. Until that becomes widely available, medical experts are concerned that infections could surge in the fall.  
 
The most important question is when taper will begin. The persistent rally in stocks are a sign that investors think the Fed could kick the can down the road and delay announcing their taper plans to September. Over the past few weeks, there have been widespread reports of deterioration in manufacturing and service sector activity in all corners of the world including Australia, U.K., Eurozone and the U.S. The Delta variant is posing a risk to the global recovery and some investors believe that the Fed could wait a few more weeks before signaling taper. There will be more information on the economic impact of delta and recent shifts in inflation trends (oil and lumber prices have come down sharply). Also, while the labor market is strong, there will be one more jobs report before the September FOMC meeting. There are also 2 more policy meetings before the end of the year in November and December so the Fed could wait a few more weeks before providing clear guidance on when they’ll start reducing asset purchases. 
 
We know that Fed Chair Powell is less worried about inflation than some of his peers so if he feels that Delta is the bigger risk and opts to be more conservative and puts off signaling taper, stocks will soar, yields will fall and the U.S. dollar will weaken. On the other hand if he feels that a one month delay won’t make much of a difference because tapering this year is inevitable so they should begin in September, stocks will descent from their highs, yields will rise and the dollar will extend its gains against all of the major currencies. 

Although personal income and spending numbers are due for release in the morning, traders should expect quiet consolidation before Powell speaks at Jackson Hole. Bank of England Governor Carney delivers a lunchtime keynote address that could also be of market moving for the British pound.  

Past performance is not indicative of future results. Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD: Bulls firming to test critical 0.71 the figure that guards a much stronger correction

AUD/USD: Bulls firming to test critical 0.71 the figure that guards a much stronger correction

There is a battle going on between the bulls and bears surrounding the Aussie and the US dollar. Bulls are testing the neckline near the current levels at 0.71 the figure. A break here will leave the bulls in good stead for a break of resistance around 0.7135.

AUD/USD News

EUR/USD: Bulls jostle with nearby resistance with eyes on 1.0770

EUR/USD: Bulls jostle with nearby resistance with eyes on 1.0770

EUR/USD pares intraday gains around 1.0700 while stepping back from an immediate resistance line. The major currency pair reverses the previous day’s pullback from the monthly high during Thursday’s Asian session.

EUR/USD News

Gold bears taking on the bulls towards critical hourly support

Gold bears taking on the bulls towards critical hourly support

The price of gold is under a little bit of pressure in Asia as the US dollar attempts to stabilise. The gold price is down 0.07% and is sticking to a range of between 41,851.63/$1,854.43 so far. Gold struggled to find a bid amid the weak economic backdrop.

Gold News

What needs to happen for Axie Infinity price to recover

What needs to happen for Axie Infinity price to recover

Axie Infinity price displays reasons to believe in further momentum to the upside. Traders should approach the digital asset with relative caution, looking for one more fake-out before the rally occurs. Axie Infinity price appears to be unfolding as an extended impulse wave down.

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures