Focus on the fallout from Jackson Hole

The dollar’s continued sell-off has been the major theme this week. Despite limited data, the greenback had still managed to give up close to 1% before Fed Chair Powell’s Jackson Hole speech. To us, this looked curious. US growth remains better than most, while data suggests a soft landing for the economy should be the base case, at odds with market pricing for jumbo Fed rate cuts before year-end. A similar point was made by other Fed speakers throughout this week too. Gradual easing appears to be the preferred option for most, if not all FOMC voters. But the focus of the week was naturally Powell and his views. The Fed Chair offered little direct steer on the path for rates, declining to echo his colleagues’ comments. Even so, Powell’s comments were hardly a validation of the market implied easing path either, despite knee jerk price action suggesting otherwise.

The fallout from Jackson Hole is likely to be a dominant theme to start next week too, with CPI prints from Australia and the eurozone, and Canadian GDP, as the major data releases of note coming up. Even, so with both the ECB and BoC nailed on to cut rates in September while the RBA should stay on hold, these events should stoke little by way of volatility in FX markets. Instead, a quiet end to the summer looks most likely to us, before a busier September brings with it a return to the office, accompanied by the next round of central bank decisions. With this in mind, we will be pausing some of our regular market commentary next week, with a look ahead to the week after coming a little later than usual on Monday 2nd of September.

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Authors: 

Nick Rees, Senior FX Market Analyst

María Marcos, FX Market Analyst

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