The U.S. dollar was mostly weaker against its G10 counterparts overnight ahead of Federal Reserve Chairman Jerome Powell’s speech in Jackson Hole later this morning.
His speech is the key risk event of the week so expect some volatility while he speaks.
This morning’s economic docket disappointed but has largely been ignored ahead of Powell. Durable goods fell 1.7%, worse than the expected 1.0% decline. The core reading that takes out transportation rose 0.2%, failing to hit estimates of 0.5%.
Two regional Fed members held hawkish stances in interviews late yesterday. Kansas City President Ester George said on Bloomberg TV that she feels it’s appropriate to raise rates “a couple more times this year.” Dallas Fed head Robert Kaplan also said he backed three or four more rate hikes over the next 12 months. The both said that they would not let recent criticism by President Trump influence central bank policy.
However, not all Fed members were as optimistic. St. Louis Fed President James Bullard said that “inflation has been very low” and that he sees rates as very close to neutral now. Bullard also expressed worry of a potential inversion of the yield curve in which short-dated debt would have a higher yield than longer-date treasuries. In the past, an inverted yield curve has been an indicator of a pending recession.
The Euro was modestly higher against the U.S. dollar. The common currency received a small boost after German GDP was finalized at 0.5% quarter over quarter growth, right in line with previous estimates.
Strangely, President Trump inserted himself into the Italian debt struggles by offering to purchase Italian government bonds next year. There is currently no framework that would allow President Trump to accomplish this leading market participants to ponder if the gesture could turn into real action.
The Australian dollar reversed some of its recent declines on an apparent resolution to this week’s political drama. Prime Minister Turnboll was ousted overnight and the former Treasurer Scott Morrison will take over as the new prime minister. Morrison will become the sixth prime minister in 10 years.
The half of a percent recovery only puts a small dent in the 1.5% fall during yesterday’s session.