Dollar Trades Stronger after Fed Hawkish Speech
The United States US dollar trades stronger on Monday, retained much of its Friday Jackson Hole bounce against its major trading partners heading into Monday, heads up to 20 years high amidst inflation rate battle.
Recall that Fed Chair Jerome Powell on Friday promised to continue the central bank’s program of interest-rate hikes to quell high inflation helped by energy crunch, covid-19 pressures and the Russia-Ukraine war.
On Monday, the after-effects of Fed Chairman Jerome Powell’s Aug. 26 Jackson Hole speech may keep the markets on edge before key data are released. Markets look for various Fed speakers this week to soften Powell’s hawkish message that Fed will remain in an inflation-fighting mode for a time even if economic conditions deteriorate.
A quick summary of foreign exchange activity heading into Monday shows that USDCAD slipped modestly to 1.3054 from 1.3038 at the Friday US close but remained above the 1.2929 level at the same point Friday morning before Powell’s speech.
There are no Canadian data scheduled for release on Monday. The Bank of Canada’s monetary policy committee meets on Sept. 7, where the BOC is expected to continue its tightening policy.
USDJPY surged to 138.60 from 137.5268 at the Friday US close and 136.9107 at the same time Friday morning, as the expected monetary policy of the US drifted even further from the Bank of Japan’s ultra-accommodative stance.
The BOJ meets next on Sept. 21-22, where it is expected to make no change to rates despite signs of accelerating inflation. Data released overnight showed that the Japanese leading index hit a three-month low in June.
USDEUR improved modestly to 0.9977 from 0.9961 at the Friday US close but was still below the 1.0014 level at the same point Friday morning. The pair had been as high as 1.003 right before Powell’s speech Friday before falling sharply after.
There are no ECB data on Monday’s schedule. The European Central Bank meets Sept. 8 to discuss another rate increase. GBPUSD fell to 1.1689 from 1.1737 at the Friday US close and 1.1835 at the same point Friday morning, losing ground on Powell’s speech without much recovery.
UK markets are closed Monday for Summer Bank Holiday. The Bank of England is expected to raise interest rates by another 50 basis points at its Sept. 15 meeting. Fed promises to continue to hike interest rates despite costs to growth and employment until inflation is under control.
“Powell sent a short and direct message that there won’t be a Fed pivot anytime soon and that has markets positioned for further equity weakness. READ: U.S Dollar Trades Under Pressure over Fed’s Taper Fever
“Investors were expecting that once the US got some ugly data, perhaps a couple of negative non-farm payrolls report that the Fed would come to the rescue, but that might not be the case.
“Premature loosening won’t be happening on the first signs that the economy is slowing down quickly and that raising doubts for anyone who bought stocks earlier this month”, OANDA analyst, Edward Moya said in a note. # Dollar Trades Stronger after Fed Hawkish Speech
