Fed Chair Powell’s Speech Aftermath Puts Dollar on the Defensive

Fed Chair Powell’s speech last Thursday on the Jackson hole left the market in question til the closing day of last week. On Monday morning starting this week in Asia, the US dollar is showing signs of losses against the Yen and Aussie dollar. 

This decline is the fourth consecutive monthly decline opening on Monday since it’s long streak since the summer of 2017.  

Investors are shaken and still digesting the speech of U.S Federal Reserve Chairman Jay Powell at the Jackson Hole symposium last Thursday. Powell’s speech unveiled the new approach to inflation which has been interpreted as low rates to continue for a longer period. 

“It seems clear to us that we are at the start of a multi-year period of dollar decline, from very elevated levels… our doubts, about whether the dollar can suffer a broad-based fall in the midst of risk aversion, global recession and particularly emerging market weakness, have been blown aside by the Fed.” –Societe Generale 

The yen seems to strengthen with the talks of Yoshihide Suga, a longtime lieutenant of Shinzo Abe reportedly joining the race to succeed him as Japan’s leader. He would be expected to extend the fiscal and monetary stimulus that Abe implemented in his term in the government. 

Aside from the Japanese politics, the U.S. opinion polls this week in the wake of the political party conventions and, on the data front, the Purchasing Manager’s Index figures in China and across major economies, as well as Friday’s U.S. payrolls number are being watched by the investors hoping for a positive outlook on the U.S. dollar. 

Investors has also set their eyes on the coming speeches from a other Fed officials, with Vice Chairman Richard Clarida at 1300 GMT on Monday and Raphael Bostic at 1430 GMT, for any clues on the Fed’s new approach to inflation. 

“This week could see continued dollar weakness as the market looks for hints on the new framework… month-end rebalancing could also bring weakness at the beginning of the week.” – Barclays analysts wrote in their own note. 

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