For the first trading session of August 26th, the U.S. dollar is holding tight due to market anticipation of the July PCE inflation report as well as market forecasts of the first Fed Chairman Jackson Hole speech by Kevin Warsh. A more hawkish timing for a potential September rate pause by the Fed seems to be the more prevalent market opinion, with the July PCE inflation report likely to reinforce that opinion or counter it and push the market towards an additional rate hike. Collins, Boston Fed President, said during the week that interest rates will need to go up unless core inflation (which is currently hovering around 3.3%) shows a material decline.
Fiscal policy is also a looking constraining. While Treasury attempts to stabilize long term yields by expanding its existing bond buyback programs, practices to support aggressive Treasury borrowing, have come back into the spotlight and prompted some to ask whether there is a real threat of "fiscal dominance" for a central bank. That is a theme that will almost definitely be addressed at Jackson Hole along with inflation and Fed independence.
The Euro, on the other hand, has a clearer and more pressing monetary policy environment. ECB Executive Board member, Schnabel, said that current policy remains accommodative and that rates will need to be raised higher in order to return inflation to target in a sustainable manner. ThisW applies especially in the current environment with elevated energy prices and re-enforces market expectations for a September rate hike.
Sterling is one currency impacted by the current divergence in narrowing policies. Even while inflation in the UK remains unacceptably high, growth has surprised to the upside, leaving the market not pricing aggressive easing. However, strong labor market conditions makes fast hiking a policy option.
For 26 August, the primary FX theme is uncertainty in U.S. inflation and Fed Policy versus clearer expectations for Euro zone rates, with PCE and the Jackson Hole summary by Richard Clarida and John C. Williams, the likely new Fed Vice Chair, as the likely dominant topics.
#market #hole #likely
Fiscal policy is also a looking constraining. While Treasury attempts to stabilize long term yields by expanding its existing bond buyback programs, practices to support aggressive Treasury borrowing, have come back into the spotlight and prompted some to ask whether there is a real threat of "fiscal dominance" for a central bank. That is a theme that will almost definitely be addressed at Jackson Hole along with inflation and Fed independence.
The Euro, on the other hand, has a clearer and more pressing monetary policy environment. ECB Executive Board member, Schnabel, said that current policy remains accommodative and that rates will need to be raised higher in order to return inflation to target in a sustainable manner. ThisW applies especially in the current environment with elevated energy prices and re-enforces market expectations for a September rate hike.
Sterling is one currency impacted by the current divergence in narrowing policies. Even while inflation in the UK remains unacceptably high, growth has surprised to the upside, leaving the market not pricing aggressive easing. However, strong labor market conditions makes fast hiking a policy option.
For 26 August, the primary FX theme is uncertainty in U.S. inflation and Fed Policy versus clearer expectations for Euro zone rates, with PCE and the Jackson Hole summary by Richard Clarida and John C. Williams, the likely new Fed Vice Chair, as the likely dominant topics.
#market #hole #likely
3 days ago
