LDN - Business

Dollar still near one-week low before Powell's speech

[August 27, 2020] By Olga Cotaga

LONDON (Reuters) - The U.S. dollar remained near the one-week low it reached earlier on Thursday, before a speech by Federal Reserve Chairman Jerome Powell that's expected to signal the central bank will tweak its policy framework to help push up inflation.

Powell is scheduled to address the Fed's annual central bankers' conference at 1330 GMT, usually held in Jackson Hole, Wyoming, but being conducted virtually this year because of the COVID-19 pandemic.

The changes are likely to mean that Fed will base its future monetary policy on realized rather than projected inflation data while explicitly accepting an overshoot in inflation. That means that the Fed will leave interest rates at their current lows for longer than in past crises, which in turn weakens the dollar.

Graphic: US consumer price inflation https://fingfx.thomsonreuters.com/
gfx/mkt/azgponnwxvd/us%20inflation%20aug%2027.PNG

If Powell fails to meet these expectations, "there is potential for a correction" in euro/dollar, which rose as high as $1.1966 last week after the minutes of the Fed's July meeting revealed its doubts about introducing yield-curve control, said Ester Reichelt, an analyst at Commerzbank.

"FX market participants therefore hope that Jackson Hole will once again provide a little more clarity about the immediate monetary policy outlook so that euro/dollar will find some new momentum in one direction or the other," she said.

John Hardy, head of FX strategy at Saxo Bank, said euro/dollar's "key technical triggers look to be a close above 1.1900 or below 1.1700 to establish direction."

The euro last traded at $1.1807 <EUR=EBS>, down 0.2% on the day, after earlier rising to a six-day high of $1.1850.

The dollar's index against six major currencies <=USD> rose 0.2% at 93.04, still near its weakest this week and not far off the two-year low of 92.12 it touched last week.

[to top of second column]

A U.S. Dollar banknote is seen in this illustration taken May 26, 2020. REUTERS/Dado Ruvic/Illustration

Since the start of the pandemic, the Fed has expanded its balance sheet by as much as about $3 trillion, far more than the European Central Bank and the Bank of Japan.

The dollar was steady against the Japanese yen at 106.04 <JPY=EBS>. A key focus for the yen is a news conference by Prime Minister Shinzo Abe scheduled for Friday amid growing speculation over his health.

The yen is likely to gain should Abe resign. Aggressive monetary easing with close cooperation between the government and the central bank, dubbed Abenomics, has been one of his trademark policies, traders said.

The British pound stood firm at $1.3194 <GBP=D3>, having gained nearly 8% in three months. The Australian dollar <AUD=D3> was changing hands at $0.7246, up 0.2% on the day.

The Chinese yuan was at its strongest since January after data showed a recovery in profits at China's industrial firms.

The offshore yuan stood at 6.8827 per dollar <CNH=EBS>, having risen before to 6.8699, its strongest since Jan. 21.

The market appeared to ignore the latest sign of rising tension between the United States and China. The United States on Wednesday blacklisted 24 Chinese companies and targeted individuals over construction and military activity in the South China Sea.

Graphic: World FX rates in 2020 https://graphics.reuters.com/GLOBAL-CURRENCIES-PERFORMANCE/
0100301V041/index.html

(Reporting by Olga Cotaga, editing by Larry King)

Back to top