Title: US Dollar Strengthens Following Powell’s Hawkish Comments at Jackson Hole Symposium
Author: Originally reported by Mitrade
Published at: Mitrade News & Analysis
The US dollar registered a robust performance across global foreign exchange markets following Federal Reserve Chair Jerome Powell’s address at the Jackson Hole Economic Symposium. Powell’s remarks suggested a readiness to maintain a restrictive monetary policy stance in the face of persistent inflationary pressures, sparking a rally in the greenback while pushing Treasury yields higher.
Jerome Powell reaffirms inflation fight
Federal Reserve Chair Jerome Powell delivered a closely-watched speech at the annual economic forum in Jackson Hole, Wyoming, where central bankers, economists, and financial leaders gather to discuss key macroeconomic themes. Powell’s highly anticipated comments reinforced the Federal Reserve’s commitment to a “higher for longer” policy framework aimed at bringing inflation back to its 2 percent target.
Key takeaways from Powell’s Jackson Hole speech:
– The Fed is attentive to the risks that inflation may not continue to decline as expected.
– Policymakers are prepared to raise rates further if appropriate.
– Fed officials intend to proceed carefully and assess incoming data and its implications for inflation and labor market trends.
– Powell acknowledged that strong consumer spending, tight labor market conditions, and the resilience in economic activity indicate the economy may require additional policy firmness.
– He reiterated that the Fed will continue to make decisions “meeting by meeting” and is not confident yet that inflation is sustainably moving down to target.
The Fed Chair’s hawkish tone helped lift the US dollar index (DXY) to its highest level since June, as investors recalibrated interest rate expectations heading into the final months of 2024. Following the speech, Fed Funds futures priced in a slightly increased probability of an additional rate hike by November.
DXY rally and broad USD strength
Powell’s address sparked a notable rally in the Dollar Index (DXY), which measures the greenback’s performance against a basket of six major currencies. The index surged past 104.00, its highest level in more than two months.
Performance of major currencies against the US dollar in the aftermath:
– EUR/USD fell under 1.0800, extending its retreat due to the contrast between the Fed’s hawkishness and signs of economic slowdown in the eurozone.
– GBP/USD dipped below 1.2600 amid a lack of hawkish follow-through from the Bank of England, which appears more cautious due to weakening UK growth data.
– USD/JPY rose past 146.50, as widening yield differentials between US Treasuries and Japanese government bonds continued to support the pair.
– AUD/USD and NZD/USD both declined sharply, impacted by weaker commodity prices and the broader strength of the US dollar.
Markets interpreted the Fed’s posture as indicative of its willingness to keep real yields high and financial conditions tight. Real yields, particularly the 10-year TIPS yield, climbed as markets adjusted expectations for future disinflation and policy easing timelines.
Treasury yields rise alongside the greenback
Following Powell’s remarks, Treasury yields across the curve moved higher, continuing a trend seen over recent sessions due to solid economic indicators and persistent inflation prints. The benchmark 10-year Treasury yield touched levels above 4.25 percent, approaching 15-year highs, while the 2-year yield firmed near 5 percent, reinforcing the inverted yield curve.
This yield curve inversion suggests market participants still foresee a potential recession in the medium term, even as short-term growth remains resilient.
Analysts believe that higher long-end yields reflect both rising term premiums and repricing of the neutral rate. The idea that economic activity can continue expanding despite high interest rates has sparked speculation that the new neutral rate — the level neither restricting nor stimulating growth — could be higher than previously thought.
Market reaction: equities, gold, and commodities
While the US dollar gained traction and Treasury yields rose, broader financial markets showed mixed reactions. Major equity indices faced downward pressure,
Read more on EUR/USD trading.