Title: Dollar Strengthens Ahead of Powell’s Speech at Jackson Hole Symposium
Subtitle: Strong labor market data and anticipation of Fed Chair’s speech provide support
Date: August 24, 2022
By: Saqib Iqbal Ahmed
The U.S. dollar demonstrated strength against various currencies on Thursday, buoyed by robust labor market data and investor anticipation of Federal Reserve Chair Jerome Powell’s upcoming speech at the Jackson Hole Economic Policy Symposium.
Investors are keenly awaiting Chair Powell’s address on Friday at 10:05 am ET for indications of the Fed’s stance on interest rate hikes and the duration of keeping rates elevated.
Stuart Cole, chief macro economist at Equiti Capital in London, commented on the market dynamics, stating, “I think what we are seeing is largely pre-Jackson Hole position readjustments.” He further added, “Nobody knows what Powell is going to say tomorrow and therefore the default currency to move into is the USD.”
The dollar’s rise was also supported by data revealing a decrease in the number of Americans filing unemployment claims, despite the Federal Reserve’s aggressive interest rate hikes.
Cole highlighted the significance of the jobless claims data, stating, “I think possibly the jobless claims numbers have also provided some support for the dollar as they were not as soft as had been feared and go some way to offsetting the downwards revision to the payrolls number we had yesterday.”
The U.S. dollar index, which measures the currency against six major counterparts, increased by 0.52% to reach 103.88, approaching the highest level seen in over two months.
Mounting concerns over softer-than-expected economic data from Europe and the United States have dampened investors’ appetite for riskier currencies, leading them to seek refuge in the safe-haven greenback.
Meanwhile, the Turkish lira rallied to a two-month high against the dollar, surging approximately 5% to 25.6805, following an unexpected hike in the Turkish central bank’s one-week repo rate from 17.5% to 25%. Economists had anticipated a rate increase to 20% according to a Reuters poll.
Turkey’s central bank has been on a tightening cycle since June, with the recent move signaling its determination to combat inflation. The initial market reaction to the decision was positive, reflecting investor confidence in the central bank’s commitment to restraining inflation.
In contrast, the British pound dipped against the dollar and euro after data revealed a contraction in British activity in August. This triggered speculation that the Bank of England may delay further rate hikes. The pound declined by 0.87% to $1.2629, nearing a near two-month low recorded the previous day.
The yen remained under pressure as traders closely monitored any indications of the Japanese government’s readiness to intervene and support the currency, as it had done in the past. The dollar was 0.77% stronger against the yen, approaching a nine-month high reached the previous week.
China’s yuan, supported by recent state-bank buying, stabilized at 7.2839 per dollar.
The focus of the market remains on Chair Powell’s speech, with investors expecting crucial insights into the Federal Reserve’s monetary policy direction.
Additional reporting by Joice Alves, Tom Westbrook, and Ankur Banerjee. Editing by Angus MacSwan and Andrea Ricci.
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