Aug 28 (Reuters) – The dollar index eased on a Monday amid London’s bank holiday, as investors digested ambiguous signals from central bankers, save for the dovish BoJ governor, at last week’s Jackson Hole symposium while awaiting key data later in the week for clearer signs.
A corrective rebound in risk-taking, partly prompted by China’s latest measures to bolster waning growth and slow investment outflows, weighed slightly on the haven dollar and the yen, and supported risk-sensitive currencies such as the aussie and sterling, which rose 0.27% and 0.19%, respectively.
EUR/USD gained 0.12% and USD/JPY was little changed.
After Jackson Hole the Fed is seen likely to hike rates another 25bp at November’s meeting as long as U.S. data remain relatively robust, while the ECB — which is further behind the inflation curve — is a higher probability to raise another 25bp as early as September’s meeting.
Fed Chair Jerome Powell emphasized the need for more data before possibly pushing rates higher, with markets interpreting this as an unspoken preference of driving inflation lower by simply sustaining rates at current levels.
But ECB President Christine Lagarde laid out a litany of potential upside inflation risks in her speech on Friday.
The ECB has to contend with weakening euro zone data, including Monday’s ECB report showing lending in the region slowing further even as euro zone inflation was at 5.3% in July, compared to U.S. inflation at 3.2%, much closer to the 2% target of both central banks.
The Fed’s greater data dependence and EUR/USD’s precarious position just above major supports has the market focused on Thursday’s euro zone CPI and U.S. core PCE, then Friday’s U.S. employment and ISM manufacturing reports for August.
USD/JPY scope for further new 2023 highs is largely tied to U.S. data and Treasury yields after BoJ Governor Kazuo Ueda laid out at Jackson Hole why policy will have to remain extremely easy.
Sterling didn’t get much help from BoE Deputy Governor Ben Broadbent’s hawkish comments on Saturday as markets were already pricing at least two more BoE hikes beforehand to deal with UK inflation still at 6.8%.
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(Editing by Burton Frierson Randolph Donney is a Reuters market analyst. The views expressed are his own.)
((Randolph.donney@thomsonreuters.com))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
