US Dollar (USD) Forecast Improves in Anticipation of Fed Chair Yellen?s Jackson Hole Speech

August 23, 2016 - Written by John Cameron

STORY LINK US Dollar (USD) Forecast Improves in Anticipation of Fed Chair Yellen?s Jackson Hole Speech

USD Exchange Rate Volatility Forecast as the Week Continues

US Dollar-watchers may have to wait until the very end of the week to witness any significant price action for the Buck. The last afternoon session before the weekend close brings the publication of July’s Advance Goods Trade Balance data and Q2’s US Gross Domestic Product figures but it also sees America’s most senior central banker make an important set piece speech.

The Economic Symposium at Jackson Hole is an event to which FX market participants attach much store. The annual get-together of the great and the good from across the global financial system often yields new information which can alter the value of the world’s major currencies and this year’s edition is unlikely to disappoint.

US Rate Hike Ahead? US Dollar Could Gain on Pound and Euro

Weekend comments from America’s second most important policymember Stanley Fisher have whet investors’ appetite for Jackson Hole, leading many analysts to surmise that a US interest rate hike might be close at hand. The Federal Reserve Vice Chairman painted a go-ahead picture of the current state of the US economy during a speech in Aspen, Colorado on Sunday afternoon, noting that, ‘we are close to our targets’.

The senior Fed rate-setter went on to list the catalogue of mini-crises which have threatened the US economic recovery following the 2007-09 global financial crisis, including a near debt meltdown in Greece and the sharp increase in the value of the Dollar which hit domestic US industries. Fisher followed this up by asserting that,

‘Even amid these shocks, the labour market continued to improve: employment has continued to increase, and the unemployment rate is currently close to most estimates of the natural rate

He concluded that, ‘it is a remarkable, and perhaps under-appreciated, achievement that the economy has returned to near-full employment in a relatively short time after the great recession, given the historical experience following a financial crisis.’

Stronger USD Could Send AUD, NZD Exchange Rates Lower

Fed-watchers pointed out that, given it was delivered only five days before Fed Chair Janet Yellen’s public statement due on Friday afternoon in Jackson Hole, the tone of Yellen’s speech was likely to deviate much from that of Fisher’s. If the Fed Chair does indeed issue a positive assessment of the American economy at the end of the week, then analysts forecast that the US Dollar (currency : USD) will enjoy sustained near-term gains against the other sixteen most actively traded global currencies. A side effect of this could see worldwide share markets fall sharply in anticipation of a US interest rate hike; such a move would hurt the risk-driven Australian Dollar (currency : AUD) and New Zealand Dollar (currency : NZD).

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