Jackson Hole shifts balance of risks but USD gains mutedFX Daily Snapshot

Key arguments

• Fed Chair Warsh's hawkish tone at Jackson Hole raises the risk of a rate hike, but the market reaction has been muted due to the fact that the FOMC hasn't hiked in the last two meetings and the Board of Governors are more dovish than regional Presidents.
• Every G10 central bank meets this month, with some hikes priced in, but elevated energy prices could lead to hawkish rhetoric, curbing USD buying appetite.
• The upcoming NFP and CPI data are crucial for the Fed's decision; weaker data would justify a hold, but Chair Warsh's comments suggest a close call.
• Commodity price rises, especially natural gas in Europe, could influence central bank policy and limit USD gains.
• USD buying is also curtailed by recent 'USD debasement' sentiment and the US preference for a weaker dollar.

Corresponding source evidence

1. Firstly, as laid out below, every G10 central bank is meeting this month and some will be hiking, some may surprise and hike and some will remain on hold. · this month
2. But if energy prices remain elevated and/or grind higher the tone of rhetoric from most central bankers is likely to be hawkish and this could well be curtailing the appetite to buy the US dollar at this stage.
3. Hence, the data points over the coming few weeks ahead of the FOMC remain key and could once again shift the balance of risks back in favour of a hold.