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Weekly currency news: US dollar dips after Fed Powell’s speech

The dollar lost ground last week and extended its pullback from the one-year high reached on mid-august. Fed Chairman, Jerome Powell disappointed investors who were expecting a more hawkish message at his Jackson Hole conference last Friday.

Powell confirmed the Federal Reserve’s commitment to raising interest rates, in spite of the recent criticism by US President Trump, but some analysts observe his emphasis on the term “gradual” as a hint to a somewhat more cautious approach in the mid-term.

This week we will have some interesting events in the calendar like the second reading of US GDP or the Eurozone Consumer Prices Index, although the calendar is likely to remain in the background, with the US-China trade tensions and the Brexit deal driving the markets.

Currencies last week

  • EUR/USD: recovery extends beyond 1.1600
  • GBP/USD: bounces up and returns above 1.2800
  • EUR/GBP: testing key resistance at 0.9030
  • USD/JPY: rebounds at 109.75 and reaches 111.50


Main events this week:


Dollar

In the US calendar, on Wednesday the second Quarter’s Gross Domestic Product is expected to be revised down to a 4.0% year on year growth, from the initially estimated 4.1%. US economy remains growing at record levels thus, we expect this event to be neutral or positive for the dollar.

On Thursday, there is a string of US indicators scheduled, with special interest on the US personal income and spending data. These are two key indicators of economic activity and very closely observed by the Fed, therefore, they tend to have a relevant impact on US dollar volatility.

 

Euro

The Eurozone calendar opens on Monday with the German IFO Business Climate Index a relevant indicator of business expectations rat is expected to have ticked up after three consecutive contractions. An upbeat IFO reading might offer some support for the euro.

On Friday, Eurostat will release the preliminary Consumer Prices Index which, according to the market consensus is not going to show any progress from the previous month. With the core inflation far below the ECB’s 2% target for price stability, the risk of this event is likely to be negative for the euro.


Pound

In, the UK, in absence of events of special relevance this week, we expect the pound to move according to the news about the progress of the Brexit negotiations between the EU and the UK.

 

Yen

In the Japanese Calendar on Wednesday retail trade figures are expected to show that consumption contracted in July for the second time in the last three months. Consumption is a relevant contributor of Japanese GDP and, in that sense, a large than expected decline might e negative for the yen.

On Thursday, we will be attentive to the Tokyo Consumer Prices Index data. The Tokyo CPI, which is considered an advanced indicator of nationwide inflation is expected to have ticked down in August. If this is confirmed, it would support the BOJ’s plan to extend its ultra-expansive monetary policy, which tends to be negative for the yen.


Economic calendar

Economic calendar