The dollar looks cheap ahead of Jackson Hole

While the data calendar offered more this week in terms of potential market-moving content, volatility continued to subside in the aftermath of last week’s market freakout. Indeed, it is this that has remained the key theme through recent days, as traders continued to unwind the previous market overreaction. The greenback stands out against such a backdrop, ending the week softer by almost half a percent. Not only does this mark an extension of last week’s slide, but it is at odds with the recent data as well. Just this week, inflation readings showed a modest pick up in price growth through July, while retail sales for the same month beat expectations, underlining the resilience of the US consumer. And yet, despite this, market expectations for Fed easing continue to see a 50bp rate cut before year-end as a base case, with these overly aggressive rate cut projections acting as a drag on the greenback’s recovery. Next week, however, we think this should change. While, Canadian CPI, August PMIs, and a Riksbank decision will all offer some entertainment, the focus for traders should be on Jackson Hole. Specifically, we struggle to see how Chair Powell would justify such a dovish rate path when he speaks at the Fed’s annual chin-wag. Instead, we think he will validate our call for three FOMC rate cuts this year at most. If we are right, this should unlock renewed dollar strength after this week’s underperformance – we continue to think the broad dollar will end the month trading 1-1.5% stronger than current levels.

You can read the Week Ahead in full here:

DOWNLOAD THE FULL REPORT

Authors: 

Nick Rees, Senior FX Market Analyst

María Marcos, FX Market Analyst

Disclaimer

This information has been prepared by Monex Europe Holdings Limited, part of Monex S.A.P.I. de C.V. (“Monex”). The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. All entities in the “Monex” group of companies are regulated for different products and services within the jurisdictions in which they operate. Details of the different entities can be found here. Details of the respective entities’ regulated status and available products and services can then be found on the relevant links to the individual jurisdictions’ website.