US Dollar Forecast Strengthens Ahead of Powell’s Jackson Hole Speech: GBP/USD and EUR/USD in Focus
By James Hyerczyk | Original article from FX Empire
The US Dollar has advanced across major currency pairs this week, reflecting investor anticipation ahead of Federal Reserve Chair Jerome Powell’s highly awaited speech at the annual Jackson Hole Economic Symposium. With market participants awaiting Powell’s comments for clues on future monetary policy, key pairs like GBP/USD and EUR/USD have shown significant movements, reaffirming the Greenback’s short-term strength.
Overview of Factors Driving the US Dollar
Investor appetite for the US Dollar has grown steadily in recent sessions due to several fundamental and technical catalysts:
– Stronger-than-expected economic data
– Rising US Treasury yields
– Hawkish commentary and expectations regarding future interest rate moves by the Federal Reserve
– Global risk aversion supporting safe-haven demand
These elements combined have put downward pressure on foreign currencies like the British Pound and the Euro.
Federal Reserve and Jackson Hole Symposium
The primary focus of currency traders this week is the Fed’s stance on interest rates, especially amid signs that the US economy remains resilient despite earlier aggressive monetary tightening. Jerome Powell is scheduled to speak at the Jackson Hole symposium, a key event attended by central bankers, academics, and economists.
Key areas of market interest regarding Powell’s speech include:
– Clarity on whether the Fed feels rates are restrictive enough to combat inflation
– Indications of a potential rate pause or continuation of hikes
– Assessment of inflation pressures and economic momentum
Traders are particularly concentrated on whether Powell will reiterate a hawkish view, which would bolster the US Dollar, or lean more dovish, which might trigger short-term Dollar weakness.
US Economic Data Supporting Dollar Strength
The recent economic indicators in the United States have largely surprised to the upside, giving further justification to investors’ confidence in continued Fed tightening or at least maintaining elevated rates for longer. Noteworthy data releases include:
– Retail sales earlier in August exceeded expectations with a 0.7 percent monthly increase, showing strong consumer spending
– Initial jobless claims dropped to 239,000 last week, showing continued strength in the labor market
– Industrial production rose by 1 percent month-on-month in July, against expectations of a smaller gain
These data points suggest the US economy is avoiding recession fears for now and provide the Federal Reserve with room to keep interest rates higher without immediately risking economic contraction.
GBP/USD Analysis: Sterling Under Continued Pressure
The British Pound remains under pressure as the UK economic outlook diverges from that of the United States. The GBP/USD pair recently failed to hold above key support zones and has resumed a downward bias amid disappointing UK figures and a resurgent Dollar.
Key drivers impacting GBP/USD include:
– Weak UK economic indicators, particularly signs of stagnation in GDP growth and high inflation
– Divergent central bank expectations, as the Bank of England (BoE) appears closer to pausing rate hikes compared to the Fed
– Technical breakdowns on the chart indicate bearish momentum in play
From a technical standpoint:
– GBP/USD has broken support near the 1.2700 level and is now targeting lower zones around 1.2600 and 1.2530
– The RSI (Relative Strength Index) has entered bearish territory, confirming the selling pressure
– Near-term resistance sits around 1.2740 to 1.2800
Unless Powell surprises with dovish commentary, GBP/USD is likely to continue under pressure, especially if UK data continues to disappoint.
EUR/USD Analysis: Euro Faces Renewed Selling
Similarly, the EUR/USD pair has dropped significantly due to Dollar strength and growing concerns around the Eurozone economy. The European Central Bank (ECB) has delivered multiple rate hikes, yet inflation still lingers above target, and economic activity remains sluggish.
Factors weighing on EUR/USD:
– Divergence between a relatively robust US economy and a stagnating Eurozone
– Expectations that the ECB may soon pause rate increases
Read more on EUR/USD trading.