Marc Chandler, Global Head of Currency Strategy at BBH explains that the US dollar began consolidating earlier this month after trending lower since the start of the year and they expected this phase to draw to a close shortly. The Fed's Jackson Hole Symposium (August 24-26) was going to mark the end of the lull, he further adds.
“The US employment data is released a week later and the ECB meeting a week after that. The FOMC meeting is a fortnight later.”
“The Jackson Hole gathering is an annual event. It is true that there have been a few times, where officials used that forum to send a meaningful signal to investors, but this is the exception. The topic this year is "Fostering a Dynamic Global Economy." It never seemed particularly reasonable to us to expect ECB President Draghi to use this forum, which he has not attended for a few years, to give some fresh policy clues. That said, many, if not most, are expecting that the ECB will announce it will continue to buy assets, but starting next year, it will do so at a reduced pace. Currently, they are buying 60 bln euros a month, and it may be reduced to 30 bln.”
“Fed Chair Yellen will also speak at Jackson Hole. A consensus among the Fed appears to have emerged to announce the reduction the balance sheet in September to be implemented beginning in Q4. A September hike has not been anticipated for several months, but a recent WSJ survey found 75% of economists expect a move in December. NY Fed's Dudley recently indicated that he could support a hike at before the end of the year provided the economy continues to evolve as the Fed expects.”
“We do not anticipate that Yellen will contradict this general view. In the recent past, Yellen has argued for greater integration of women in the work force to facilitate a more dynamic economy. The FOMC minutes came out hard against legislative efforts to dilute bank regulations and this could be repeated at Jackson Hole insofar as of US banks have demonstrated in deed if not word that regulation is not necessarily antithetical to growth and profitability.”
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