Dollar Outlook: 3 Key Questions For Jackson Hole

Dollar Outlook: 3 Key Questions for Jackson Hole

The U.S. dollar traded sharply higher against all of the major currencies on Thursday on the back of stronger data. There was an upward revision to second-quarter GDP and while the increase was less than expected, the direction of the adjustment was positive for the greenback. Jobless claims ticked up but the more closely watched 4-week average dropped to its lowest level since the pandemic began. All eyes are on Friday’s Federal Reserve Jackson Hole symposium. We heard from a few central bankers this morning and their comments were relatively hawkish. Fed President George said it is time to begin adjusting accommodation while Fed President Bullard called on the Fed to get going on taper and finish in the first quarter of 2022. Both are non-voting members of the FOMC this year but it is clear there are policymakers like Bullard who do not share Powell’s view that inflation will moderate.

Fed Chairman Jay Powell speaks at 10 am ET / 14 GMT on Friday and investors will be watching for answers to 3 key questions:

#1 – Will taper begin in September?
#2 – Is Delta or inflation the bigger concern?
#3 – What does the central bank’s post pandemic policies look like?

Jackson Hole is an important venue for Federal Reserve policies. At last year’s conference, Powell announced that they would no longer raise interest rates on the labor market and inflation targets alone. They wanted evidence that prices were rising sustainably which could mean allowing CPI to exceed their 2% target for a period of time.

A month ago, investors expected the Fed to set out details for reducing bond purchases at Jackson Hole but the rapidly spreading Delta variant complicates the central bank’s policy plans. On the one hand, the labor market recovery is strong and inflation is on the rise but on the other, lockdowns and new restrictions in other nations poses a risk to the global recovery. Evidence is growing that vaccine efficacy is waning and a third booster will be needed. Until that becomes widely available, medical experts are concerned that infections could surge in the fall.

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