Dollar stuck in hole as Powell speaks Reuters

A look at the day ahead in US and global markets from Mike Dolan

Jerome Powell takes center stage at the Federal Reserve’s Jackson Hole jamboree on Friday, but the Fed chair will have to sound super-demanding to stop the dollar from one of its worst weeks of the year.

Powell’s colleagues have already done a good job of reducing expectations that the Fed’s first interest rate cut next month will be as much as 50 basis points – and futures markets are pricing the same for just over a quarter of a point.

Boston Federal Reserve President Susan Collins said Thursday that the timing “seems right” to begin easing, but added that she favored a “gradual methodical approach to reviewing our policy stance over time.”

The latest US business surveys for August underscored the lack of urgency as they beat forecasts, largely due to robust responses from firms in the service sector. Home sales in July also beat expectations.

But it hasn’t all been sweet and easy, with output still stuck in contraction mode and weekly jobless claims rising. Moreover, Citi’s Aggregate Global Economic Surprise Index now takes its worst reading since the depths of the pandemic lockdowns in 2020.

And so the direction of travel for US “tight” interest rates remains down, nearly 100bps of Fed cuts this year remain in futures prices, and the dollar will likely struggle to reverse this month’s sharp pullback in this environment.

This is especially true in relation to the yen, where Bank of Japan Governor Kazuo Ueda told parliament that the central bank will continue with further interest rate hikes there as long as incoming economic data is presented as it is now assumed. And on that front, the latest Japanese inflation figures were in line, with annual core consumer price increases for July as expected at 2.7%.

While acknowledging policy caution following recent market turmoil, Ueda told parliament: “Japan’s short-term rates are very low. If the economy is in good shape, they will reach levels considered neutral.”

Dollar/yen fell back below 146 after the testimony and the benchmark stock index closed 0.4% higher.

Two-year Treasury yields barely clung to 4% ahead of Powell’s keynote speech at 10am New York time, although they were up more than 10bps from the week’s low.

And Wall Street stock futures recovered much of Thursday’s swoon ahead of Friday’s bell, still eyeing a record high that came within half a percent of yesterday’s intraday hit. The volatility gauge fell to just above 17 – a fraction below its long-term median.

Perhaps as big as Powell’s speech for stock market megacaps is the take on Wednesday’s quarterly earnings report from artificial intelligence firm Nvidia (NASDAQ: ).

In politics, Vice President and Democratic nominee for the November White House race, Kamala Harris, delivered her keynote speech at the Democratic convention in Chicago on Thursday night, saying she would aim to pass a tax cut for the working class. means as one of her plans.

Although the gap between betting markets has narrowed over the past week, the website PredictIt shows that Harris remains the favorite to win the election over challenger Donald Trump.

In overseas corporate news, Swiss food group Nestle lost 1.5 percent after announcing it would replace CEO Mark Schneider with company veteran Laurent Freixe.

Key developments that should provide more direction for US markets later Friday:

* July US New Home Sales; Mexico’s current account T2

* Federal Reserve Chairman Jerome Powell speaks in Jackson Hole; Bank of England Governor Andrew Bailey and Norway’s Central Bank Governor Ida Wolden Bache are also speaking at the symposium

(By Mike Dolan; Editing by Timothy Heritage; [email protected])