Jackson Hole Fears And Cues Drive The Dollar's Surge

(RTTNews) - The Jackson Hole Economic Symposium and the anxiety about Federal Reserve Chair Jerome Powell's commentary thereat was the overwhelmingly predominant theme for currency markets during the week spanning August 21 to 25. The U.S. dollar strengthened substantially against the euro, the British pound, and the Japanese yen, and mildly versus the Australian dollar.

Jerome Powell, in his speech on Friday reiterated that the Fed remained focused on bringing inflation to the level of 2 percent but assured to proceed carefully. The hints triggered fears of interest rates remaining higher for longer, giving a fillip to the greenback in the currency market.

The Dollar Index which measures the dollar's strength against a basket of six currencies gained close to 0.7 percent during the week ended August 25. The index rose from 103.38 at the end of the previous week to close the recent week at 104.08.

The decline of Manufacturing and Services PMI readings for August triggered a mid-week weakness in the greenback. New orders for manufactured durable goods in the U.S. plummeting more than expected also weakened the sentiment. However, the more-than-expected hawkishness on display by the Fed Chair at the Jackson Hole speech on Friday, revived the Dollar's fortunes. The spike in bond yields also supported the Dollar's rally. The week's trading range was between the high of 104.45 touched on Friday and the low of 103.01 touched on Tuesday.

A more-than-expected decline in producer price inflation in Germany and the weak PMI readings from the region diminished the prospects of an aggressive rate hike by the ECB. At the same time, the Fed continuing with hints of rate hikes, dragged the EUR/USD pair 0.60 percent lower during the week ended August 25. From the level of 1.0865 on August 18, the pair dropped to 1.08, after steadily dropping from the high of 1.0932 on Tuesday to the low of 1.0766 on Friday.

The pound's weakness following the decline in inflation, the deceleration in PMI readings for both the manufacturing and services sectors and the Fed's persisting aggressiveness caused the GBP/USD pair to decline 1.2 percent during the week spanning August 21 to 25. The pound which was last traded at $1.2730 on August 18 closed on August 25 at $1.2577. The week's trading range for the pair was between a high of 1.2802 and a low of 1.2548.

The Aussie more or less resisted the U.S. dollar's strength, closing flat at 0.6400 versus 0.6402 a week earlier amidst lackluster PMI readings. The AUD/USD pair traded between 0.6489 and 0.6380 during the week.

The Japanese yen shed 0.72 percent against the U.S. dollar during the week ended August 25. The USD/JPY pair closed at 146.41 on August 25 versus 145.37 at the end of the previous week. The pair traded between the low of 144.54 on Wednesday and the high of 146.65 on Friday in a week marked by a major spike in U.S. treasury yields.

Several key economic data releases are due from the U.S. in the upcoming week which could sway the Fed's decision on interest rates. These include data on job openings, the PCE-based inflation readings, the non-farm payrolls reading, the unemployment numbers as well as the manufacturing PMI. Flash inflation readings are due from Germany, France as well as the Euro Area. PMI readings from China are also due during the week which could provide an update on the health of the manufacturing sector.

Amidst the anxiety, the Dollar Index has moved to 104.07. The EUR/USD pair has edged higher to 1.0804 whereas the GBP/USD pair is trading higher at 1.2589. The AUD/USD pair is currently at 0.6417. The USD/JPY pair has increased to 146.51.