Markets quiet following Powell’s dovish Jackson Hole speech Friday – Scotiabank

The US Dollar (USD) is entering Monday’s NA session with broad—albeit minor—gains as it tries to claw back a portion of Friday’s Jackson Hole-driven decline, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD seeing broad gains attempting recovery of Friday’s drop

"Fed Chair Powell was dovish, paving the way for easing in September as he noted rising downside risks to employment. There were caveats though, as Powell noted that the labour market was in a 'curious kind of balance' and that the effects of tariffs on prices were now more apparent (but might be short-lived). Still, the fact that Powell chose to endorse near-term rate cut chances rather than push back against them prompted a sharp fall in US yields and another significant repricing of Sep OIS to reflect the strong chance of a 25bps cut."

"The USD fell, stocks rallied and the US yield curve steepened—a potential further constraint on the USD. Big, bearish outside range day reversals like the DXY formed on Friday have developed on three occasions since late May, driving an average loss of 2.9% in the index over the following couple of weeks. A similar reaction to Friday's signal would drive the DXY to around the 96 level - a new cycle low to sustain the broader, secular bear trend in the index."

"This week’s data run may not have much impact on markets, with September 5th NFP now the data point markets will await to determine rate cut prospects. Comments from Fed speakers may, however, garner a little more attention. NY Fed President Williams (voter, hawk) speaks this evening. Monday’s NA release schedule includes the Chicago Fed National Activity Index, new home sales, and the Dallas Fed manufacturing activity index. The overall market tone appears mixed as equity futures soften from their recent highs while yields retrace a portion of Friday’s decline. In commodities, crude (WTI) and copper are both up, and gold is steady in the middle of its flat range."