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Dollar awaits Powell’s Jackson Hole speech

The dollar steadied on Friday as investors awaited a highly anticipated speech by Federal Reserve Chair Jerome Powell, with analysts now doubting the central bank’s boss will hint when he may start to trim asset purchases.
The market was focused this week on what signals the U.S. central bank could send at its annual Jackson Hole conference, which kicked off on Thursday in virtual format, with the main event being Powell’s speech on Friday.

The event has been often used by Fed bosses in the past to provide guidance on future policy.

Regional Fed chiefs – Dallas’ Robert Kaplan, Kansas City’s Esther George and St. Louis’ James Bullard – downplayed on Thursday the impact of the Delta coronavirus variant in separate interviews. Bullard repeated his call for the Fed to start trimming its $120 billion monthly bond purchases.

Analysts doubt Powell will signal when the Fed may start to cut its asset purchases just yet. The rough consensus in the market is that the Fed’s Chair will announce tapering in the fourth quarter, giving a clear signal at one meeting before the actual announcement.

But any move away from “a more cautious approach” could give a boost to the dollar, said Thu Lan Nguyen, FX analyst at Commerzbank.

“I see the risks today in a stronger dollar, should Powell possibly make a more hawkish statement on tapering than generally expected after all,” she said.

The dollar index, which measures the greenback against a basket of six major currencies, was little changed, exchanging hands at 93.046 by 0820 GMT.

Benchmark 10-year Treasury note yields were last at 1.3458%, after reaching 1.375% following Bullard’s comments, the highest since Aug. 12.

Overnight, the safe haven dollar got some support after a suicide bomb attack at Kabul airport.

“There are worries events in Afghanistan could erode public approval of the Biden administration,” said Toshiya Nakamura, chief manager of forex at Mitsubishi UFJ Trust Bank.

The euro and sterling were little changed at $1.1754 and $1.3702 .

The New Zealand dollar dipped slightly after Prime Minister Jacinda Ardern announced that a lockdown against COVID-19 in Auckland is likely to remain in place for a further two weeks.

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Source: Reuters (Reporting by Joice Alves, Hideyuki Sano, additional reporting by Tomo Uetake; Editing by Shri Navaratnam, Kim Coghill and Mark Heinrich)

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