- US Dollar price action jumps with several tailwinds in place.
- Traders will be looking for any headlines in the run-up to the Jackson Hole Symposium later this Thursday.
- US Dollar Index strength got sponged over after weak US PMI numbers.
The US Dollar (USD) was back to square one after the loss on Wednesday, though hawkish comments from former Fed member James Bullard and lower jobless claims numbers are fueling another Greenback rally this Thursday. Ahead of Jackson Hole, whipsaw moves happened these past few days and must have hurt both parties that were trying to take positions before the main event taking place later this Thursday and Friday with the annual Federal Reserve (Fed) Jackson Hole Symposium. The crème-de-la-crème of central bankers from developed countries will be convening to discuss and evaluate what to do next with these elevated rates and inflation not yet being near its projected target.
A big slew of data arrives Thursday with the risk that after the contractionary numbers from the latest US PMI on Wednesday, the Durable Goods data this afternoon could dampen the recent positive tone even more and dent economic confidence in the US. Once at 14:00 GMT, the Jackson Hole Symposium is set to start. Thus be on the lookout for any comment from non-Fed central bankers making statements that could trigger a substantial move in other currencies against the Greenback. Traders will be bracing for an eventful 48 hours to come.
Daily digest: US Dollar falls in line
- Excpect for inviting Saudi Arabia, the BRICS convention thus far has failed to tackle any substantial subjects. With Brazil, India and hosting country South Africa coming out against any form of dedollarization, it looks like the BRICS will need to focus on closer trade ties. This means the US Dollar will remain some more time to most used currency for settling commodity contracts and other trade agreements.
- In an interview on Bloomberg television to kick off the annual Jackson Hole Symposium, former Fed member James Bullard repeated that reacceleration could put upward pressure on inflation and thus makes it impossible for the Fed to start cutting rates anytime soon. The US Dollar jumps in an immediate reaction and the DXY flips back in the green for this Thursday.
- All eyes on Jackson Hole headlines around 14:00 GMT with several top central bankers of developed countries lined up to make comments and possibly hint at crucial changes in their monetary policy. Expect any fallout not only to be limited to the Greenback, but to other currencies as well.
- Before the Fed Symposium kicks off, at 12:30 GMT a big batch of data got released: Durable Goods Orders went from 4.6% to -5.2%. Though it was rather the Jobless Claims that received the most attention with a contraction on the initial claims from 239K to 230K where 240K was expected. Even the Continuing Claims went lower from 1,716K to 1,702K.
- The Chicago Fed National Activity Index jumped higher from -0.32 to 0.12 and is back in positive territory.
- The data set for this Thursday is expected to close off with the Kansas Fed Manufacturing Activity remaining steady from -11 to -10.
- This Thursday the US Treasury is heading to auction a 4-week bill and a 30-year TIPS issuance.
- The BRICS convention invites Saudi Arabia and other countries to join the bloc.
- Equities are up across the board after Nvidia earnings substantially beat expectations after the US closing bell on Wednesday. The Japanese Topix index is up 0.40% at the close, Hong Kong’s Hang Seng index is up nearly 2%. In Europe stock markets are starting to pull back and are nearly flat as traders brace for any headlines out of Jackson Hole.
- The CME Group FedWatch Tool shows that markets are pricing in an 86.5% chance that the Federal Reserve will keep interest rates unchanged at its meeting in September.
- The benchmark 10-year US Treasury bond yield trades at 4.22% after touching a new yearly high on Thursday. The bond market will be very sensitive to any news on Thursday and Friday at the Jackson Hole Symposium. The whole US yield curve could move up or down depending on the speech from Fed Chair Jerome Powell.
US Dollar Index technical analysis: US Dollar has the wind in its sails
The US Dollar almost had its hand around that 104-handle in the US Dollar Index (DXY) before taking the contraction in US PMI numbers on the chin. The DXY plunged like a failed jelly cake and closed out Wednesday in the red. Though US Dollar bears should not flaunt their success just yet, DXY bulls are nicely consolidating their positions above the 200-day Simple Moving Average (SMA) before the next attempt to reach 104 which could already happen this Thursday.
On the upside, as you could have guessed from the above paragraph, 104.00 is the first nearby target. The high of Friday at 103.68 is vital and needs to get a daily close above it in order for the DXY to eke out more monthly gains. Should this US Dollar strength persist for the last part of this year, May’s peak at 104.70 could become the reality again.
On the downside, several floors are likely to prevent a steep decline in the DXY. The first one is the 200-day Simple Moving Average (SMA) at 103.16, which already broke on Monday and Tuesday, though it held on the implosion Wednesday. Passing below the 103.00 figure, some room opens up for a further drop. However, around 102.38 both the 55-day and the 100-day SMAs await to backstop the pairs.
Central banks FAQs
Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.
A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.
A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.
Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.
Source: https://www.fxstreet.com/news/us-dollar-on-edge-for-headlines-out-of-jackson-hole-symposium-brics-meeting-202308240933