The United States Dollar is attempting to stage a recovery this morning after being routed in Friday’s US session.
Overview
Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium delivered the fireworks markets had been promised, as the head US central banker opened the door to interest rate cuts coming down the pipe as soon as next month. Equities and treasuries in particular soared on the news, but the Dollar Spot Index slid nearly a percent in trading following Powell’s speech into Friday afternoon’s close.
Though Powell did note that he and the other US central bankers had been handed an unusually challenging economic situation, his focus landed primarily on risks to the health of the domestic labor market. Following July’s surprisingly poor non-farm payroll reading that triggered the sacking of the head of the Bureau of Labor Statistics, it’s clear that fiscal and monetary policymakers alike have shifted their focus more toward unemployment than potential for resurgent inflation. Powell was sure to include, however, that the economy has seen consumer costs begin to rise again as a result of the Administration’s trade policy, a sentiment likely to be confirmed later this week with the release of the Fed’s preferred inflation gauge of PCE for July. Questions of Fed independence, too, remain top of mind as Trump also threatened to fire Fed Governor Lisa Cook if she does not resign, amidst allegations of mortgage fraud. Though the charges may or may not be merited, this would still provide a convenient opportunity for Trump to change the makeup of the Federal Reserve in the image that he’s been looking for since January, and any potential replacement would no doubt be quite dovish.
The data calendar, too, promises to inject some volatility back into markets that have been fairly sluggish through a relatively quiet August. The main event on Thursday comes with the PCE Deflator Index for July, set to show that inflation increased again to 2.5% quarter-over-quarter. The second reading of GDP for Q2, too, is due out Thursday morning, which markets currently expect to show a slight upward revision to growth.
What to Watch This Week…
- US GDP Q2 2nd Est, Thursday 8:30 AM
- US PCE Deflator Index JUL, Friday 8:30 AM
- France & Germany GDP & CPI, Friday
- Monex USA Online is always open
The complete Economic Calendar can be found here.
EUR ⇓
The single currency is sliding a touch this morning in keeping with today’s broader Dollar-positive trend, but was one of the biggest benefactors in the G10 of Powell’s dovish turn Friday at Jackson Hole. EUR gained more than a hundred basis points versus USD into Friday’s close and is holding onto the vast majority of those gains this morning. Data from Germany this morning showed that confidence of businesses unexpectedly improved to its highest level since 2022, on the heels of a trade deal between the EU and the US. German and French economic readings due out later this week could inject some uncertainty into month-end flows that traditionally lean Dollar-positive.
JPY ⇓
Japanese Yen is the biggest loser in the G10 this morning, unable to hold as much of Friday’s gains as many of its major peers. Risk sentiment around the world is generally more positive this morning as traders continue to digest the implications of a newly dovish US central bank, and equities are overperforming while traditional havens like JPY and CHF retreat. BoJ leader Ueda did strike a more hawkish tone than expected in his own speech at Jackson Hole, citing continued risks from a tight labor market that could put further upward pressure on prices, and implied volatility for the USD/JPY pair is rising across all tenors.
