USD

This morning’s session has seen the dollar unwind part of yesterday’s rally as traders become more confident that Jerome Powell won’t announce the formal tapering timeline at today’s speech at 16:00 CET.

The dollar’s rally yesterday was aided by rising Covid cases, boosting the risk-on inflows, and an upwards revision to Q2 GDP in the second reading. The gauge of economic growth was revised up from an annualised QoQ rate of 6.5% to 6.6%.

Meanwhile, Federal Reserve speakers cast a hesitant tone when speaking to media yesterday during the start of the Jackson Hole event, which entrenches the idea that a lack of consensus among members and an uncertain backdrop will prevent Jerome Powell from announcing the start of the Fed’s normalisation cycle today.

Released just prior to Powell’s speech this afternoon is July’s PCE inflation data, which is expected to rise from 4% YoY to 4.1%, highlighting the conundrum faced by monetary policymakers as further supply chain disruption is set to keep inflation elevated.

EUR

The euro joined the rest of the G10 in declining throughout yesterday’s session against the dollar, but has rebounded this morning amid broad USD weakness and declining Treasury yields.

The single currency’s price action continues to be driven by broader market dynamics, more specifically fixed income dynamics, as traders await the green light from the Federal Reserve.

Within the eurozone, data is beginning to reflect the tentative Covid backdrop, with yesterday’s release of Germany’s GfK consumer confidence index for September falling from -0.4 to -1.2. This morning, France’s consumer confidence measure for August also fell below the 100 breakeven level to 99, down from 100 back in July.

The declining confidence indices have done little to dent the euro’s rally this morning, however, with emphasis still resting on Jackson Hole and any policy announcements made there.

GBP

Sterling was pushed down by a deteriorating risk climate in yesterday’s session as rising Covid cases in the US added further risks to the global economic outlook.

However, with Jackson Hole now looking like a dull event given the deteriorating health backdrop in the US, 10-year Treasury yields look to have topped out, which is weighing on the dollar at the margin. With very little in the data calendar for the UK today, focus will remain on what Jerome Powell says at Jackson Hole this afternoon.