By Jameel Ahmad, Global Head of Currency Strategy & Market Research, FXTM
There is a lower level of market volatility at the end of the week, with investors on stand-by mode before Federal Reserve Chair Jerome Powell speaks at Jackson Hole later Friday.
Traders are probably on the edge of their seats wondering whether Powell will respond at all to the criticism from U.S. President Trump towards US interest rate policy earlier in the week, but the most market-friendly way to respond to such comments would be to ignore them. The Fed does remain set on raising U.S. interest rates again next month, and there is no reason for it to deter from this path. I doubt that he would acknowledge the comments made by President Trump during Jackson Hole.
Powell might be able to create some volatility for traders if he highlights the potential impact of ongoing trade tensions to the global economy. There are indications that the global economic outlook is slowing when compared to this time last year, and the latest FOMC minutes released this week did create a picture that Federal Reserve policymakers are concerned about the prolonged trade tensions. If Powell suggests that these concerns over trade tensions could also weaken the US economic outlook, this would represent a risk for the Dollar.
Elsewhere, a threat for financial market volatility would be if Jerome Powell takes an unexpected turn towards offering monetary guidance on what the outlook for 2019 could bring. The market is already pretty much set-on for the Federal Reserve to raise US interest rates next month with the door also remaining open for a potential US interest rate increase before the year concludes. But there isn’t much guidance on what to expect next year. It might be a little premature at this stage to speculate, but if Powell suggested that 2019 would bring a less active approach towards raising US interest rates this would be seen as a negative for the US Dollar.
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