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Currency Market Analysis

Aug 27, 2021 | Currency Market Analysis

Global Themes

The virtual Jackson Hole Symposium has been keeping markets cautious for over a week now as investors have been anticipating hawkish comments from US Federal Reserve (Fed) Chairman Jerome Powell about dialing back monetary stimulus. GBP/USD, which has mostly been trading in line with the market’s risk sensitivity, yesterday dipped to over 1-week lows after a suicide bomb attack in Afghanistan's Kabul airport triggered safe haven demand giving the US dollar a boost. This morning, sterling has regained the $1.37 handle and Euro is still hugging 1.1750, though as Jackson Hole looms.

USD

The market continues to digest comments from Dallas Fed President Robert Kaplan as he expects the central bank to start hiking interest rates in 2022. Kansas City Fed President Esther George and St. Louis Federal Reserve President James Bullard also made separate hawkish comments, with Bullard repeating his call for the Fed to begin asset trimming soon. However, some investors expected Powell to adopt a more dovish tone in his speech as the macroeconomic landscape has deteriorated since the July policy gathering with a consensus among investors that Powell could announce asset tapering in the fourth quarter of 2021. That said, speculations that the Fed might still begin rolling back its pandemic-era stimulus should hold traders from placing aggressive bearish bets around the USD.

With oil prices up, commodity driven currencies such as CAD and NOK have started the day slightly up but really, investors around the world are waiting for Powell. Expect some big volatility out there today.


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