Dollar Weakness to Continue or Reverse: Markets Eye Jackson Hole and US Data

The coming week is crucial for FX markets as investors assess whether recent US dollar weakness is a pause or a broader trend. The focus centers on three interconnected themes: the aftermath of the Jackson Hole symposium, Chair Kevin Warsh's evolving policy framework, and a heavy US data calendar led by labor market and manufacturing sector indicators.

Jackson Hole takes on added significance this year as investors look to Fed Chair Kevin Warsh's first major policy speech for clarity on the Fed's reaction function. A hawkish tilt could reinforce higher-for-longer rate expectations, lifting Treasury yields and the US dollar at the expense of Asia FX, while a more balanced or data-dependent message could accelerate dollar weakness.

The ISM manufacturing survey will provide some indications on business activity momentum, while the August employment report later in the week could be the biggest market-moving event. Market now expects some improvement in private payroll growth, average hourly earnings gains, and a stable unemployment rate, which would reinforce the higher-for-longer narrative and support the dollar.