Title: Dollar Trend Expected to be Limited ahead of Powell’s Jackson Hole Speech
In the early Asian market trading on August 23, the US dollar index remained within a narrow range, currently trading around 103.56. On Tuesday, the dollar index climbed near a two-month high and was up 0.26% at 103.60. However, traders anticipate the trend to be limited as they await Federal Reserve Chairman Jerome Powell’s speech at the Jackson Hole seminar later this week.
The US dollar index reached a two-month high of 103.68 last week, driven by concerns over the Asian economy and bets on higher US interest rates. Ahead of Powell’s speech, it is expected that currency markets will show limited movement as traders prefer not to take big positions.
Helen Given, a currency trader at Monex USA, stated, “Powell’s speech will be closely watched. I don’t think the dollar will make any big moves before the seminar; no one wants to bet on the wrong side of the market.”
Traders are also keeping an eye on the BRICS summit in Johannesburg for any news on stimulus measures in Asia. The group, consisting of Brazil, Russia, India, China, and South Africa, represents major emerging economies.
Meanwhile, the US dollar against the Japanese yen closed down 0.23% at 145.88 on Tuesday. The yen has been under pressure, prompting traders to anticipate the possibility of intervention by the Japanese government to support the currency, as it did last year.
Given from Monex USA commented, “My expectation is still at the 147 level. If the yen cannot hold its ground, I still think the potential for intervention is high.”
Economists at ING suggest that a significant catalyst for the yen’s rise could be a sharp correction in risk assets. The Japanese government currently seems reluctant to take action, avoiding a confrontation with rising US Treasury yields that could push the USD/JPY pair higher. While foreign exchange intervention may not be imminent, the yen’s rally could be triggered by a sharp correction in risk assets, driven by a surge in US Treasury yields.
In other currency news, despite a slight pickup in risk appetite, the British pound closed down 0.19% against the US dollar on Tuesday, trading at 1.2731. The British Consumer Price Index rose by 6.8% year-on-year in July, indicating that the cost of living crisis in the UK is far from over.
Furthermore, ongoing strikes by British railway workers, doctors, and teachers are impacting the country’s economy, weighing down on the pound.
The euro against the US dollar closed down 0.46% at 1.0845 on Tuesday. The single currency continues to be affected by the weaker economic outlook in major euro zone countries.
The German Bundesbank released a report suggesting that the German economy may experience stagnation in the third quarter due to weak foreign demand and high interest rates. Germany’s industrial sector has been hit hard, with exports falling amid high inflation and sluggish global economic activity.
Analysts at various institutions have shared their viewpoints on the currency market. City Index and Forex.com analysts believe that a rise in the USD/JPY pair above 150 could trigger intervention by the Bank of Japan. United Overseas Bank suggests that the downward momentum of the euro against the dollar may be weakening, while GBP/USD has room for further consolidation. Societe Generale Bank warns that if the preliminary PMI data for August disappoints, the euro’s rebound against the dollar may come to an abrupt end. Meanwhile, Swissquote analysts predict a resumption of the dollar rally that began in mid-July due to rising US real yields.
As traders eagerly await Powell’s speech, the currency market is expected to see limited movement. Market participants will closely monitor the remarks made by the Fed Chairman at the Jackson Hole seminar for any potential impact on the dollar’s performance.