Fed chair’s Jackson Hole speech is likely good news for dollar bulls
Federal Reserve Chair Jerome Powell’s speech in Jackson Hole is likely to maintain the ‘higher for longer’ outlook for U.S. interest rates and bond yields - good news for dollar bulls, especially given the contrasting picture elsewhere in the world.
Short-dated yield spreads, typically a key driver of exchange rates, have been widening in recent weeks in favor of the dollar over most major currencies including the euro, sterling, yen and yuan. The two-year U.S.-Japanese yield spread, meanwhile, spiked up towards the peaks from July and March that marked levels not seen since the year 2000.
Even if the Fed doesn’t raise rates again, it is in no rush to cut them. That may change if the data suddenly deteriorates, but right now euro zone and UK rate curves are more vulnerable to a darkening growth outlook than the U.S. curve.
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