Dollar Down as Investors Digest Hawkish Fed Comments Ahead of Jackson Hole

The dollar was down on Friday morning in Asia, with investors digesting hawkish comments from some U.S. Federal Reserve officials ahead of Chairman Jerome Powell’s speech at the Jackson Hole symposium later in the day.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched down 0.04% to 93.037 by 10:52 PM ET (2:52 AM GMT).

The USD/JPY pair inched down 0.08% to 109.98.

The AUD/USD pair edged up 0.10% to 0.7241, with data released earlier in the day showing that retails sales contracted 2.7% month-on-month in July. The NZD/USD pair inched down 0.05% to 0.6944.

The USD/CNY pair inched up 0.07% to 6.4853 while the GBP/USD pair inched down 0.03% to 1.3695.

Dallas Fed President Robert Kaplan said he expects the central bank to start hiking interest rates in 2022. Kansas City Fed President Esther George and St. Louis Federal Reserve President James Bullard also made separate hawkish comments, with Bullard repeating his call for the Fed to begin asset trimming soon.

However, some investors expected Powell to adopt a more dovish tone in his speech.

“While Powell is likely to… lay the groundwork for an eventual taper, we expect him to err on the side of caution and patience this week given that the macroeconomic landscape has deteriorated since the July policy gathering,” Fiera Capital portfolio manager Candice Bangsund told Reuters.

There is a rough consensus among investors that Powell could announce asset tapering in the fourth quarter of 2021, and will give a hint at the Fed’s policy meeting before the actual announcement.

“For Powell, there is no merit in specifying the exact timing for asset tapering in today’s speech. If he doesn’t drop a clear hint, that will be mildly positive for stocks,” Kyosuke Suzuki, president of Financial AlgoTech Company at Ryobi Systems, told Reuters.

Risk-sensitive currencies will likely gain while the yen is likely to weaken in that case, he added.

A suicide bomb attack in Afghanistan’s Kabul airport for which Islamic State has claimed responsibility did gave the safe-haven U.S currency a boost.