Warsh Speech Keeps Dollar Ranges Contained at Jackson Hole
The global markets have been experiencing a quiet and risk-positive week, characterized by low volatility and mixed G10 FX performance. ING's Chris Turner notes that the dollar debasement theme has failed to extend from last week.
Market participants expect little from Fed Chair Kevin Warsh at Jackson Hole, with some speculating he may avoid discussing monetary policy altogether. If he does address it, a reiteration of the Fed's commitment to monetary policy is expected, particularly after his performance at the July FOMC unnerved the long-end of the Treasury market.
The FX market will likely take its cue from long-dated US Treasuries today, with the dollar potentially advancing against low-yielding currencies such as CHF and JPY if a hawkish read emerges. However, if Warsh underestimates the mood at the long-end of the market and 30-year Treasury yields spike back towards 5.30%, higher volatility will see higher-yielding carry currencies underperform.