If Powell were to signal another two rate hikes towards the end of year, short EUR/USD?
Jackson Hole symposium in Wyoming on Friday will firmly place Federal Reserve chair Jay Powell in the spotlight for investors as he faced the president voicing criticism of interest rate policy. However, we think Powell is likely to remain hawkish tonight.
- Economic data has been strong with wage pressures rising, inflation on target and unemployment below 4 %. Solid US stock, accompanied with a further injection of fiscal stimulus in the second half, gives justification to Fed’s tightening.
- Markets will be mindful of any sign that Fed “could be influenced by the president”, but we think such chances are very low.
- Powell will be focused on anchoring Fed’s interest rate path according to the economic environment, which is positive to US dollar.
- Watch the 10-year Treasury yield closely tonight as well. If the levels are moving towards 3%, higher USD/JPY may spur risk sentiment in stocks as well.
Fullerton Markets Research Team
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