A hawkish tone from the Fed would lift the dollar across the board

The greenback is trending marginally higher on Thursday as traders await the Jackson Hole meeting which starts today. Powell’s speech due on Friday will be in market focus and could affect dynamics in USD pairs ahead of the weekend. Should the Federal Reserve governor express a more hawkish tone and hint at tightening of monetary policy later this year, the dollar would climb north across the market.

Later today, US weekly jobless claims and another reading of the second-quarter GDP figure will be in market focus. Strong figures would add to the positive momentum surrounding the greenback. Also, the dollar derives support from the resurgent risk-off tone as the safe-haven demand has picked up ahead of a crucial event.

EURUSD climbed to local highs around 1.1775 earlier in the day before retreating marginally during European hours. Fresh data out of Germany showed that the GfK consumer sentiment index dropped to -1.2 points for September, from a revised -0.4 points a month earlier. As a reminder, Germany’s harmonized annual consumer prices rose 3.1% last month, hitting a 13-year high.

The euro continues to target the 1.1800 barrier. However, it looks like the common currency could lack the upside momentum to challenge this handle anytime soon. Furthermore, the pair may see a steep sell-off should Powell express a hawkish tone and deliver an upbeat economic assessment.

Meanwhile, USDJPY is now back above the 110.00 figure, with the pair climbing to one-week highs in the 110.20 region on Thursday. However, the dollar may need an extra catalyst in order to overcome this area in the short term. If this level gives up, USDJPY could climb to 110.60, followed by the 110.80 figure last seen two weeks ago.


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