Dollar Edges Lower; Powell's Jackson Hole Speech in Focus

© Reuters.

By Peter Nurse

AiVIF.com - The dollar edged lower in early European trade Friday, but volumes are limited as traders eagerly await a speech from Federal Reserve Chairman Jerome Powell that could point to future central bank policy.

At 2:55 AM ET (0755 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 92.998, after bouncing from Thursday’s one-week low of 92.807.

EUR/USD edged 0.1% higher to 1.1763, just off the previous day's high of 1.1779, USD/JPY was down 0.1% at 110.00, GBP/USD edged higher to 1.3703, and the risk sensitive AUD/USD climbed 0.3% to 0.7253.

Powell’s speech is the highlight of the annual Jackson Hole symposium, a gathering of central bankers that is being held virtually this year. He is widely expected to provide strong guidance over when the Fed will begin paring back in its massive bond-buying program. This would mark the beginning of the end for the central bank’s emergency measures put in place to mitigate the impact of the coronavirus outbreak.

St. Louis Federal Reserve President James Bullard started the discussion on Thursday, stating that the central bank should begin curbing its monthly stimulus efforts soon and the members are "coalescing" around a plan to begin cutting its $120 billion in monthly bond purchases.

That said, Powell has tended to be on the dovish side of the debate in the recent past, and traders are wary that this stance will continue in his speech at 10 AM ET (1400 GMT).

“The FX reaction to Powell’s remarks will likely depend on his tone on: a) the U.S. economic growth in light of the Delta-variant spread; b) the timing and length of tapering; c) any guidance on when the hiking cycle will start,” said analysts at ING, in a note.

Still, losses are limited with the situation in Afghanistan deteriorating following suicide bomb explosions outside the Kabul airport late Thursday killed numerous civilians and at least 13 U.S. soldiers.

Elsewhere, NZD/USD rose 0.1% to 0.6952 despite Prime Minister Jacinda Ardern announcing the lockdown in Auckland, the country's biggest city, is likely to remain in place for further two weeks.

USD/CNY edged higher to 6.4824 after the People’s Bank of China’s central bank said it will provide financial support for rural development with monetary policy tools including the reserve requirement ratio for banks.