US dollar slumps as Powell less hawkish than hoped

Philip McHugh August 30th 2022 - 2 minute read

The US dollar fell on Friday, in response to Federal Reserve Chair Jerome Powell’s speech at the bank’s annual Jackson Hole symposium.

Meanwhile, trade in the pound is mixed this morning, with GBP/EUR stable at €1.1719 and GBP/USD muted at $1.1711. GBP/CAD and GBP/NZD are muted at C$1.5224 and NZ$1.9041, respectively, GBP/AUD retreats to AU$1.6932.

Looking ahead, an uptick in German inflation help to bolster the euro today?

What’s been happening?

The US dollar tumbled at the end of last week as USD investors were disappointed by the ‘moderate’ tone of Powell’s Jackson Hole speech.

While Powell suggested the bank will continue to tighten its monetary policy for ‘some time’ he also suggested the Fed’s next rate decision will be data dependant and warned that lowering inflation is ‘likely to require sustained period of below-trend growth.’

The US dollar then fluctuated on Monday amid a mixed market mood.

A pullback in USD exchange rates allowed the euro to mount a convincing recovery on Friday, with the EUR/USD exchange rate even able to climb back above parity.

This uptick in the euro was reinforced by reports that the European Central Bank (ECB) may be considering a 75bps rate hike in September.

The pound, meanwhile, closed last week’s session on a sour note as Ofgem announced a massive increase to the UK’s energy price cap.

With average household energy bills now confirmed to rise to £3,549 from October, GBP investors were unsurprisingly concerned over the impact this could have on consumer spending, amid a lack of action from the government. 

This downtrend persisted at the start of this week amid the increasingly gloomy outlook for the UK economy.

What’s coming up?

The spotlight today is likely to be on the release of Germany’s consumer price index.

Economists forecast inflation in the Eurozone’s largest economy will have begun to accelerate again this month. Will this buoy ECB rate hike bets and lift the euro? Or will fears over the impact of renewed inflationary pressure on households and businesses dent EUR sentiment?

On the US docket today is the latest Job openings and labour turnover survey. If job openings continue to fall at an accelerated pace then this is likely to stoke fears the US is headed toward a recession and may weaken the US dollar this afternoon.

Meanwhile, in the absence of any notable UK economic data, the pound may be steered by political developments, with the last week of the Conservative leadership election potentially infusing some volatility into GBP exchange rates.

Written by
Philip McHugh

Select a topic: