A Stirring Start for the Dollar

By Kevin Buckland

Greetings from Tokyo, where the dollar commenced its day energetically on Wednesday. It had already enjoyed a couple of days of gains. Traders were eagerly looking forward to the Federal Reserve’s annual gathering in Jackson Hole later this week, hoping for insights into forthcoming monetary policy.

Focus on Powell’s Speech

The highlight of the week is Fed Chair Jerome Powell’s speech on Friday. It’s a moment of keen anticipation. The market’s keen to discern whether he’ll push back against the prevailing sentiment of a rate reduction next month. Presently, traders are placing 84% odds on a cut in September, with expectations of around 54 basis points of reductions by the end of the year.

Dollar’s Continuing Ascent

The dollar index, which juxtaposes the greenback against six major currencies, crept up to 98.393 early on Wednesday. This marks its highest level since August 12, having appreciated roughly 0.4% earlier this week.

Kyle Rodda, an analyst at Capital.com, remarked, “Given Powell’s high expectations, there’s a risk he might adopt a hawkish stance, unsettling investors.”

The Global Landscape

In the wee hours of Asia, the Reserve Bank of New Zealand was set to announce its policy. Many economists expected a quarter-point cut in the cash rate. The New Zealand dollar barely clung on to Tuesday’s low, last seen at $0.5895.

Rodda opined, “There’s scant reason for the RBNZ to hold rates steady. Inflation is within its target, and the unemployment rate is at a post-COVID high.”

Fed’s Complex Decisions

Following a surprisingly feeble payrolls report earlier this month, traders are betting on a rate cut on September 17. The sentiment was buoyed further after consumer price data showed minimal upward pressure from tariffs. However, a hotter-than-expected producer price reading last week muddied the policy perspective.

Powell, on his part, has expressed reluctance to cut rates, citing price pressures expected from tariffs this summer.

Insights from Fed’s Minutes

Later on Wednesday, the Fed is set to release the minutes from its July 29-30 meeting. While they maintained rate stability at that time, the insights might be limited as the meeting occurred before the weak jobs numbers surfaced.

Currency Movements

Here’s a quick look at movements among the top currencies:

Sterling has reached its lowest since August 12, whilst Australia’s dollar is at levels last witnessed on August 1.

(Reporting edited by Shri Navaratnam)