The U.S. dollar held near a one-week high against major peers on Friday as markets waited for Federal Reserve Chair Warsh to speak at the Jackson Hole gathering of global central bankers. Traders have already priced in at least one 25 basis-point rate hike this year, a view supported by U.S. inflation staying above the Fed’s 2% target.
Investors are looking for clues on monetary policy and on efforts by the U.S. Treasury to keep long-term funding costs lower, especially after recent volatility in the bond market. Still, analysts cited in the report said Warsh has been reluctant to offer firm forward guidance, making it more likely that he will focus on updates from the five Fed operational task forces set up early in his tenure.
In a report, Commerzbank foreign exchange and commodities analyst Volkmar Baur said Warsh has repeatedly stressed in recent weeks that the Fed’s 2% inflation target is non-negotiable, but has not explicitly referred to the PCE price index in that context. Baur said that could mean the Fed is at least considering a different way to measure inflation. If Warsh signals that shift, Baur said, markets may scale back expectations for further tightening, which could be read as dovish and weigh on the dollar.
The U.S. dollar traded near a one-week high against major currencies on Friday as investors waited for Federal Reserve Chair Warsh to speak at the Jackson Hole meeting of global central bankers.
With U.S. inflation still running above the Fed’s 2% target, traders have priced in at least one 25 basis-point rate hike this year. That expectation has helped support the dollar over the past few sessions.
Markets are looking to Warsh’s remarks for more detail on monetary policy and on steps by the U.S. Treasury to push down long-term funding costs. Recent volatility in the bond market has added to the focus on the speech.
Even so, analysts said Warsh has been reluctant to provide clear forward guidance. They expect he is more likely to discuss the latest progress of the five Federal Reserve operational task forces established early in his tenure.
In a report, Commerzbank foreign exchange and commodities analyst Volkmar Baur said Warsh has repeatedly stressed in recent weeks that the Fed’s 2% inflation target is not up for debate, but has never explicitly mentioned the PCE price index in that context. Baur said the Fed may at least be considering a different inflation measure.
According to Baur, if Warsh sends that kind of signal, it could weaken market expectations for additional rate hikes. Markets could read that as dovish, putting pressure on the dollar.
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