US Dollar Offers Clearest Sign of What Wall Street Really Thinks About Powell’s Jackson Hole Speech

If there was any doubt that the comments by Federal Reserve Chairman Jerome Powell, which were spoken virtually at Friday’s Jackson Hole symposium, were interpreted as lenient, the dollar’s response should clear up any questions.

The US Dollar, as measured by the ICE US Dollar Index DXY,
was decidedly lower, falling 0.4%, at its last check on Friday, and falling 0.9% for the week, data from FactSet shows. A weekly drop of 0.9% would represent the sharpest drop for the index, which measures the greenback against half a dozen currencies, since the week ending May 7, when it fell 1.2%.

The dollar was trading near its lowest level since August 16, when it last checked on Friday.

“The US dollar immediately lost 20 pips against most of its major rivals, with the US dollar index hitting a 10-day low below 92.80 so far,” wrote Matt Weller, Global Head of Research. at and City Index, in a note following Powell’s comments.

On Friday, Fed Chair Jerome Powell said he is calling for a start in 2021 to phase out central bank bond purchases amid the worst financial market disruptions in 2020, but said he did not foresee the central bank’s cutbacks. benchmark interest rates, which are currently nearing a range between 0% and 0.25%.

In addition, he seemed to indicate that the Fed was in no rush to raise interest rates.

Powell’s comments to Wall Street bulls implied that the bearing regime stemming from the COVID-19 pandemic could last a little longer, posing a major negative for dollar bulls, at least in the short term.

The Fed chief’s comments suggest he may be giving himself more room to digest further data as he moves to normalize central bank monetary policy.

“Given Powell’s continued emphasis on the labor market, the upcoming nonfarm payrolls, including those of next Friday, will be particularly important in determining the timing and pace of the central bank’s winding down plans,” Weller wrote.

Friday’s moves for the dollar also came after the index touched a weekly gain of 1.1%, the best since the period ended June 18, taking the currency to a peak at about nine months.

However, not everyone thinks that the currency’s downturn will be permanent.

Nevertheless, we believe this will be a temporary setback, and the dollar will see some further gains in the final months of the year as the outlook for normalization of Fed policy improves and US bond yields bounce back more than those in other major economies. Jonas Goltermann, senior market economist at Capital Economics, wrote in a Friday research note.

capital economy

Goltermann pointed to an uptick in 10-year Treasury yields BX:TMUBMUSD10Y,
which fell to about 1.32% on Friday, and a strong labor market, as likely impetus for an eventual recovery of the dollar.

The dollar’s drop on Friday came as the Dow Jones Industrial Average DJIA,
the S&P 500 index SPX
and the Nasdaq Composite COMP
ended at or near all-time highs.