FX markets brace for volatility as attention turns to Jerome Powell’s Jackson Hole speech
FX markets are quiet in front of Powell’s speech later today. Investors will be listening to the Fed Chairman for any significant change in monetary policy especially around inflation. Economists expect the Fed to commit to keeping the overnight Fed Funds rate at zero for up to five years. Also, economists expect the Fed to adjust it’s inflation target (2%) to allow for averaging. This would essentially give the Fed room to allow for higher inflation (greater than 2%) for longer.
“You only have to do a few things right in your life so long as you don’t do too many things wrong.”
August 27, 2020
EUR/USD 1.1838 GBP/USD 1.3224 USD/CAD 1.3137 AUD/USD 0.7259 USD/JPY 106.06 USD/CNH 6.8861 USD/ILS 3.3677 USD/MXN 21.9055 USD/CHF 0.9081 USD/INR 73.8150
Jobless claims for last week came in as expected with little improvement over the past couple weeks. The data does not support a V-shaped recovery. Market focus turns to Jerome Powell as he delivers an update on the Fed’s policy framework review at the central bank symposium later today. The conference takes place virtually and is viewable by the public for the first time.GBP
A relatively quiet day in the UK on the economic front, with no major data releases scheduled. London-based FX traders report markets are focused on the US with the Fed chief’s speech later today, potential damage from hurricane Laura and presidential election rhetoric.EUR
The euro rally, which saw a 10% gain vs. the dollar since May, is at a pivotal point with news on Covid, Brexit and monetary policy baked into exchange rates. FX markets will be looking for any significant change in the Federal Reserve’s stance on inflation when Jerome Powell speaks today. On Brexit watch, Germany is reported to have cancelled plans to discuss the topic at a meeting with EU ambassadors next week as there has not been “any tangible progress”.CAD
The Canadian dollar continues to trade stronger hitting levels not seen since February. The price of oil has supported a stronger loonie as have comments by Bank of Canada officials suggesting they will let inflation run higher in the future to support economic growth.ASIA/PACIFIC
The Australian dollar trades at its strongest level vs. the US dollar since January 2019. FX traders pointed to yesterday's sales of Australian government bonds as driving demand for the A-dollar.
The Japanese yen was steady overnight on news Japanese Prime Minister Shinzo Abe will serve out the remainder of his term after recent hospital visits raised questions about his health.
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