Yesterday’s release of the FOMC meeting minutes confirmed that a rate cut last month was a “mid-cycle adjustment”. The document also showed that policymakers were sharply split on the course of action to take, which was assesses by investors as a not-so-dovish sign. Now, market focus shifts to Jackson Hole symposium, where Powell’s speech will set the tone.
Should the Federal Reserve governor refrain from an ultra-dovish tone and reinforce the central bank’s position as an independent bank after criticism from Trump who called for a rate cut of 100bp, the dollar will stage a rally, and expectations of aggressive easing will plunge. But in order to avoid a massive rise in the USD, Powell may opt to express a more neutral position and highlight the central bank’s data-dependence in decision making.
Anyway, the symposium that starts today could bring some volatility to global markets in general and dollar pairs in particular. As for EURUSD, a dollar-positive scenario could bring the pair back below the 1.1060 area. In this case, traders’ focus will shift to recent lows around 1.1025.