US dollar may be positive after Powell’s steadfast position on interest rates hiking cycle. The speech in Jackson Hole is expected to keep rates up for a longer period of time.

US dollar seems cautious – yet fuzzy after Powell’s address

Trend – Stuck in the Middle

The end of Fed Chair Powell’s Jackson Hole main speech signals the Fed will ‘act cautiously’ prior to making any further monetary policy choices.

At future conferences, we will review our advancement considering each aspect of the facts.  As well as the developing prognosis and dangers. In light of this judgement, we shall proceed with caution in determining whether or not we should tighten more. And to maintain the policy rate unchanged as well as wait additional details. The restoration of price equilibrium is critical to fulfilling both aspects of our twofold mission. Stability in prices shall be required to ensure an ongoing stretch of robust job prospects which benefit everybody. We continue to working till the project is completed.

The US dollar is trapped in the center of a spectrum, having plenty in the address affecting bulls and bears. US market indexes are higher. Although have scaled off most of the earlier advancements. whereas the US 2-year yields have risen a few points to sit at 5.06 percent.

A Bullish Case?

This is encouraging news for dollar bulls, particularly with regard to the global outlook.

Whilst the US economy looks to be rolling along fine – at a near-6% yearly rate. Based on the latest Atlanta Fed monitoring figure – the identical is not the case for its primary competitors. Especially the euro area as well as China.

Prior to Powell’s key talk during the Kansas City Fed’s yearly summit of US & global leaders on Friday. the dollar’s value reached a 2-month top versus a basket of key currencies.

Short-term yield spreads, an important determinant of exchange prices, have widened in the past few weeks favoring the value of the dollar. Which includes the euro, pound, yen, as well as yuan.

Although it’s usually risky to draw too many conclusions from market movements on any particular morning.  Particularly for those susceptible to reflexive responses to important data or policy incidents.  it is important to note that there was actually no retreat on Friday.

The 2-year US yield stayed over 200 basis pts above its German counterpar.t Representing the calendar year’s largest difference in support the United States dollar.  While both US-UK 2-year differential reached its highest in just over two months.

In the meantime, the 2-year US-Japanese yield differential has risen to values that have not occurred until the year 2000. With tops in July along with March.

The yield differential related to various advanced nations are anticipated to assist the dollar’s movement towards an upper trading area.

Conclusion

If Powell’s speech could be reduced to a single phrase or two, it would most likely be that follows: “We will move forward cautiously while we consider whether or not we ought to tighten more. Or in cases rather, maintain the target rate steady & seek more data.”

It is a ‘win’ scenario for the US dollar, perhaps in the weeks to come and probably through the final stretch of the year. Additional tightness is still not being factored into US interest rate sectors. Thus additional 25 bps increase is bound to bolster the currency.

Should the Fed refrains from raising rates once more, it is not in a hurry to lower them, also. This could shift if the statistics abruptly worsens, however the euro area & UK rate curve have become more sensitive to a poor growth forecast compared to the US growth