Federal Reserve Chair Jerome Powell is expected to adopt a moderate tone during his speech at the Jackson Hole symposium, according to a recent note from Macquarie analysts.
While Powell’s remarks will be closely scrutinized by markets, Macquarie suggests that he is unlikely to lean too dovish in his commentary.
Macquarie analysts highlight that Powell’s tone, along with upcoming data and political developments, could influence the direction of the U.S. dollar (USD) in the near term.
Specifically, they note, “We wouldn’t be surprised by a moderate tone from Powell,” which could have implications for currency markets and investor sentiment. They add: “Yet, we doubt that Powell will be so bold as to sound so ‘dovish.'”
The analysts also point out that any post-convention rally in Kamala Harris’s polls next week could contribute to further USD weakening.
The note places Powell’s anticipated remarks in the context of broader market dynamics, particularly the recent decline in the USD.
They note that over the past four weeks, the USD has experienced significant weakness, which Macquarie attributes to the unwinding of the “Trump trade” that favored a strong dollar.
This decline has also been influenced by expectations that the European Central Bank (ECB) and the Bank of England (BoE) may not match the Fed’s anticipated rate cuts this year.
The analysts further observe that European wage growth could play a role in shaping the near-term outlook for the USD.
They point out that recent indicators suggest European inflation might remain a deeper concern for ECB policymakers than for the Fed, particularly due to persistent service-sector wage pressures.
While Powell is expected to strike a balanced tone at Jackson Hole, Macquarie’s note underscores the complex interplay of factors, including wage growth in Europe and U.S. political developments, that could impact the USD’s trajectory in the coming weeks.
