Monex: Markets process Jerome Powell's Jackson Hole speech

Monex: Markets process Jerome Powell's Jackson Hole speech

Monetary policy Currency
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This is a commentary by Ima Sammani, FX Market Analyst at Monex Europe, on the USD, EUR and GBP exchange rates.

EUR

The single currency notched a fresh 3-week high this morning as traders continue to price the fallout from Friday’s Jackson Hole speeches, while rising inflation prints are likely to keep the currency elevated.

Spain’s HICP data for August printed 40bps above expectations at 3.3% YoY this morning, while regional measures from Germany also look like they will exceed expectations before the nation's overall inflation index is released at 14:00 CET. Beyond that, there is very little in the data calendar for G1 markets as a whole today

USD

The US dollar has garnered all of the attention recently as markets digest the latest Fed commentary and shift their expectations of policy normalisation.

This was especially the case on Friday when Chair Powell stated that the Delta variant posed increased uncertainty to the economic outlook and was a reason to remain cautious despite the improvement in labour market conditions lately.

While maintaining messaging that a material QE tapering is likely to start this year, Powell’s commentary pushed back expectations of Fed normalisation and weighed on the dollar;  the DXY index fell nearly half a point.

The dovish stance from Powell adds even more importance to Friday’s Nonfarm Payrolls data, which should show continued improvement in the labour market recovery. A faster than expected recovery will likely force the Fed’s hand towards earlier normalisation, and in turn boost the dollar and US Treasury yields, but it still remains our base case that the tapering announcement is unlikely to come before November’s meeting.

Elsewhere in the US, investors will be focusing on the progress of Hurricane Ida as it halts Gulf oil extraction and refining, while also causing large levels of economic damage and power outage.

GBP

After turning around its fortunes on Friday to close 1% higher on the week against the dollar, the pound opens this morning’s session in a much more sanguine nature, largely due to the limited developments over the weekend and today being a bank holiday in the UK.

However, momentum still favours a continued rally in GBPUSD as the dollar continues to edge slightly lower after Fed Chair Powell’s dovish speech on Friday, meaning further gains could be in store for the pound should markets not post a sharp turnaround in the afternoon session once US investors come online.