Overview
The anticipation is building up for Fed Chair Jerome Powell’s insights on US monetary policy, which will be shared at the Jackson Hole economic symposium on Friday. Market sentiment has been influenced by various factors, including the recent soft-landing bets that have contributed to the recovery in equities. Goldman Sachs has even lowered the probability of a US recession in the next year from 25% to 20%, based on positive retail sales and jobless claims data. This week, the market’s focus will be on the Democratic National Convention, the US-South Korea joint military exercise, and several central bank decisions, which are expected to impact the dollar’s trajectory.
Looking ahead, the Buck’s movements will likely be swayed by political developments and economic data releases. The unwinding of bets on a potential return to the White House by Donald Trump has softened the dollar, as the market reassesses the likelihood of this scenario. Vice President Kamala Harris’s performance and the upcoming Democratic National Convention are also key events that could influence market sentiment. Additionally, the release of the August jobs report on September 6th will be a critical data point that may further adjust recession probabilities and affect the dollar’s strength. On Wednesday, we review Minutes from the Fed’s last meeting for clues into Fed thinking.
What to Watch Today…
- Fed Minutes Wednesday
- Jerome Powell speaks from Jackson Hole Symposium
- Monex USA Online is always open.
View Economic Calendar
MXN ⇓
The Mexican Peso is being an exception to currencies improving over the Buck as it is down just under 1.0% for this morning in anticipation of a rough week. In Mexico, the June data and revised second-quarter GDP numbers out Thursday are expected to show that activity and domestic demand are losing momentum. The headline and core inflation are anticipated to have slowed in the first two weeks of August but remained above the target. The minutes from the August central bank meeting are likely to convey caution, but with weaker activity and slowing inflation, there may be an opening for additional rate cuts. This suggests a cautious but potentially accommodative stance by the central bank, which could influence the Peso’s performance in the short term.
For the week ahead, the market will likely focus on the central bank’s minutes for insights into future monetary policy decisions. The Peso’s moves will be closely watched as investors assess the balance between slowing activity and the potential for rate cuts. Additionally, the broader regional economic data, such as Chile’s GDP and Argentina’s activity data, may also impact market sentiment and the Peso’s trajectory.
JPY ⇑
The Japanese Yen has shown significant strength against the US dollar, rallying over 1% amidst a cautious market environment. This surge is attributed to the anticipation of key central bank events, particularly the Bank of Japan Governor Kazuo Ueda’s appearance in parliament and Federal Reserve Chair Jerome Powell’s speech at Jackson Hole. The Yen’s rapid climb, before settling at a 1.1% gain, reflects the market’s nervousness and the potential for a shift in the BOJ’s rate-hike path, especially after Deputy Governor Shinichi Uchida’s dovish stance post-July policy meeting. The political landscape in Japan adds to the uncertainty, with Prime Minister Fumio Kishida’s decision not to seek re-election stirring the pot further.
For the coming week, the Yen’s trajectory will be closely watched, with investors seeking clarity from the BOJ’s and the Fed’s upcoming addresses. The domestic political developments and the BOJ’s policy direction will play pivotal roles in shaping the Yen’s performance. Additionally, the broader Asian currency market’s response to the US’s economic outlook and the Fed’s next moves will also influence the Yen’s position. The market is poised for potential volatility, and the Yen’s moves will be a key indicator of the shifting sentiments in the global currency landscape.
