28/08/2020

Dollar strengthens after Jackson Hole Symposium


GBP

The pound fell on Thursday against a strong US Dollar after Federal Reserve Chairman Jerome Powell unveiled a new strategy to lift US employment and inflation at the Jackson Hole central bankers’ conference.

Earlier in the day, the pound brushed off fresh industry data showing UK car production recovered in July but was still down 21% on the year, and the fastest cut in service sector jobs on record in the three months to August.

Furthermore, sterling shrugged off a further Brexit setback overnight after German Chancellor Angela Merkel, who holds the rotating presidency of the EU council, removed the subject from the agenda of a meeting of EU ambassadors next week due to a lack of progress in negotiations.

USD

The dollar gained on Thursday after FED chairman Jerome Powell said the US central bank would take an aggressive approach to lift US employment and inflation. Under the new approach, the US central bank will seek to achieve inflation averaging 2% over time, offsetting below-2% periods with higher inflation “for some time”, and to ensure employment does not fall short of its maximum level.

The FED has failed to achieve its inflation target since 2012 and doubts will remain whether they will be able to raise inflation closer to their target. By keeping interest rates at record lows, this will lead to an increase in price pressure but will also hurt the dollar in the long run.

The dollar has declined by 4% since July which was the worst monthly loss in a decade, it wasn’t helped by unemployment data which now sees over a million now claiming unemployment benefits.

Key announcements

13:30 – USD – Core PCE price index m/m – forecast at 0.5% from previous 0.2%
13:30 – USD – Personal spending – forecast at 1.5% from previous 5.6%
14:05 – GBP – Bank of England governor Bailey speaks


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