Why is the US dollar ahead of Jackson Hole?
The Federal Reserve’s annual symposium in Jackson Hole is the most important event of the week. In recent months, the Federal Reserve has hinted at the need to curtail asset purchases, and the time has come. The central banks of Canada, the UK and New Zealand have already paved the way for tapering, so it would be natural for the Fed to follow suit. The Jackson Hole Symposium would be the perfect venue for the central bank to prepare the market for asset cuts, but the question is: will it do it?
Based on the massive sell-offs in the, new highs in, and Monday’s decline, investors appear skeptical. Over the past 24 hours, we have seen reports of deteriorating activity in the manufacturing and service sectors all over the world, including Australia, UK, Eurozone and US . The Delta variant poses a risk to the global recovery and some investors believe the Fed may wait until September to signal a slowdown.
In a few weeks there will be more information on the economic impact of Delta, and the recent changes in inflation trends (and have fallen sharply). There is also another employment report ahead of the September FOMC meeting. With two policy meetings beyond September (in November and December) if the Fed wanted to be cautious, it could wait a few more weeks before providing clear indications on when it will start cutting asset purchases. .
The best performing currency today was. After falling for seven straight days, crude prices rebounded strongly, rising more than 6% intraday. The bargain hunt and a weaker US dollar may have helped the recovery, but ultimately crude has fallen too quickly and when that happens a rally of relief becomes very likely. Canadian fundamentals are strong, with a central bank officially announcing plans to cut bond purchases, rising inflation and a newly vaccinated population (over 75% of eligible adults have received at least one injection).
The et also traded higher despite mixed PMIs. In the euro area, activity in the manufacturing and services sector slowed, pushing down the composite PMI index from 60.2 to 59.5. Although this deterioration was slightly larger than expected, it was only a slight decrease from the two-decade high reached in July. In the UK, manufacturing activity picked up, but service sector activity slowed. Removing COVID-19 restrictions should have boosted economic activity, but supply chain and personnel issues pushed the composite PMI index down for the third consecutive month to its lowest level in six months. None of this stopped the EUR and GBP from recovering as risk appetite was strong.
The dollar and the New Zealand dollar have soared despite ongoing lockdowns. New Zealand Prime Minister Jacinda Arden has said the country’s lockdown will, at a minimum, be extended until Friday and, in Auckland, in particular, until the end of the month. Australian Prime Minister Scott Morrison has urged the country to get vaccinated – saying blockages could become “a thing of the past” once 80% of the adult population is vaccinated. But, with only 24% of them fully vaccinated, there is a long way to go. will be the center of attention tonight, with the release of retail sales in New Zealand. The second quarter has been strong for New Zealand and the latest consumer spending report should reflect that.