Dollar rises ahead of Jackson Hole gathering

NEW YORK, Aug 24 – The dollar rose across the board on Thursday as investors awaited Fed Chair Jerome Powell’s speech on Friday at the Jackson Hole Economic Policy Symposium.

Investors are looking forward to Powell’s address on monetary policy at 10:05 am ET on Friday for clues to the Fed’s thinking on whether it is about done with interest rate hikes and how long it plans to hold rates high.

“I think what we are seeing is largely pre-Jackson Hole position readjustments,” said Stuart Cole, chief macroeconomist at Equiti Capital in London.

“Nobody knows what Powell is going to say tomorrow and therefore the default currency to move into is the US dollar,” Cole said.

Two Federal Reserve officials – Philadelphia Fed President Patrick Harker and Boston Fed President Susan Collins – on Thursday tentatively welcomed a jump in bond market yields as something that could complement the US central bank’s work to slow the economy and get inflation back to the 2% target, while also noting they see a good chance that no more interest rate increases will be needed.

Data on Thursday showed the number of Americans filing new claims for unemployment benefits fell last week, as labor market conditions remained tight despite the Fed’s aggressive interest rate hikes.

“I think possibly the jobless claims numbers have also provided some support for the dollar as they were not as soft as had been feared and go some way to offsetting the downwards revision to the payrolls number we had yesterday,” Cole said.

“But the reaction to them was pretty muted overall, suggesting the Jackson Hole symposium is the main thing on the markets’ mind,” he said.

The US dollar index – which measures the currency against six major counterparts – was up
0.63% at 103.99, its highest since June 8.

Softer-than-expected data this week in Europe and the US has weighed on investors’ appetite for riskier currencies and supported the safe-haven greenback.

Elsewhere, the Turkish lira 3 rallied to a 2-month high against the dollar, up about 6% to
25.55 against the dollar after the Turkish central bank hiked the 1-week repo from 17.5% to a much higher-than-expected 25%.

According to the median estimate in a Reuters poll, economists were expecting the policy rate to increase to 20%.

Turkey’s central bank embarked on a tightening cycle in June after President Tayyip Erdogan appointed former Wall Street banker Hafize Gaye Erkan as governor.

The central bank on Thursday repeated its pledge to tighten policy further as necessary in a gradual manner, even as it raised its one-week repo rate by an aggressive 750 basis points.

“Today’s decision sends a very strong signal that the CBRT (central bank) is determined to rein in inflation and the initial market response is very positive,” said Piotr Matys, Senior FX Analyst at Touch Capital Markets in London.

The pound declined against the dollar and euro on Thursday, a day after data showed a contraction in British activity in August, prompting markets to trim expectations for further rate hikes from the Bank of England. The British currency was down 1.03% to USD 1.26085, a near 2-month low.

British factory output slumped, leaving the economy on course for recession and prompting markets to trim expectations for further rate hikes from the Bank of England.

The yen remained under pressure as traders watched for any signs the Japanese government was ready to intervene to prop up the currency, as it did last year.

The dollar was 0.7 % higher against the yen, not far from the 9-month high 146.565 touched last week.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Joice Alves, Tom Westbrook, and Ankur Banerjee; Editing by Angus MacSwan, Andrea Ricci, and Nick Zieminski)