U.S. dollar edges higher ahead of Jackson Hole symposium

Thomas Niedermueller  Getty Images     
       A Porsche production plant in Stuttgart Germany. The ZEW survey of German economic sentiment is due Tuesday
Thomas Niedermueller Getty Images A Porsche production plant in Stuttgart Germany. The ZEW survey of German economic sentiment is due Tuesday
Author

22 August, 2017

The US dollar has fallen by 9.5% since the beginning of the year. It was the first weekly gain since the week of 12 June 2017.

At 9.04am‚ the rand was at R13.1547 to the dollar from R13.1713‚ at R15.5087 to the euro from R15.5627‚ and at R16.9318 to the pound from R16.9919. The common currency was mostly flat at $1.1816 on Tuesday.

Mario Draghi appears at this week's Economic Symposium in Jackson Hole, Wyoming and markets are nervous of what he will say.

Federal Reserve Chair Janet Yellen's keynote speech will also be closely scoured for clues on its next move.

Nevertheless, markets and analysts were keen for a better insight into top central bankers' thinking at the current juncture. "Having trended lower for much of this year, most of the bad news might be priced in".

The meeting risks being overshadowed by political events, after posturing from Donald Trump and Kim Jong-un rattled markets this month and the USA president became embroiled in a bitter row over his failure to denounce far-right extremismafter the death of a counter-demonstrator at a rally attended by neo-Nazis in Charlottesville.

This would be a major let down as the news wires have been building up the "blockbuster" element of the meeting for some time as the world's two most important Central Bankers (Janet Yellen of the Federal Reserve is the other one) are set to speak. Investors wonder when the European Central Bank may follow suit and whether Draghi will provide a steer.

"Even if Draghi does not even want to suggest a verbal intervention against euro strength, he can not come across as completely carefree regarding the euro either", Commerzbank analyst Esther Reichelt said. Still, normalisation may not be the easiest path for central bankers, with fragile economies, inflation not taking off as expected and the potential for roiling the financial markets with sudden changes.

The focus will be most intense on Mr Draghi.

This highlights concerns about anti-euro sentiment in Italy, the euro zone's third biggest economy, and political risks facing the country as it heads into elections due next year.

If Draghi agrees he might wish to push this message at Jackons Hole and quell enthusiasm towards the single-currency.

Mr Draghi's comments will still be scoured for any sign that the central bank boss may be willing to start unwinding the ECB's asset purchasing programme.

While the recent run has seen a fresh round of speculative buying coming in, it seems hard for the yellow metal to make a clear break of $1,300 levels and this remains the top end resistance through the initial weeks of September. Dallas Fed President Robert Kaplan told reporters in Lubbock, Texas, on Thursday, when asked about Jackson Hole. "However, the weaker than expected inflation has frayed the support for a December rate hike".

While the GBP/USD is approaching significant support levels, the same is not true for GBP/USD which has a good chunk of ground to concede without looking oversold.

Across the Pond, the Pound managed to stand its ground on Monday, with government papers released on Brexit having had limited impact, though with more papers due out through the remainder of the week, further responses from European Union negotiators are likely, particularly with the British government looking to put a spin on its plans, and the tone of any response will need to be considered. At the time of the report, the Euro was down 0.22% at $1.179.


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