The dollar held steady on Monday following five straight weeks of gains, as investors looked ahead to the Federal Reserve’s Jackson Hole symposium for guidance on where rates might settle when the dust of this hiking cycle clears. The greenback gained 0.7% on the euro last week, inched ahead versus the yen, and surged by more than 1% against the Antipodean currencies as U.S. Treasury yields leaped in anticipation of interest rates staying higher for longer.
Investors are also waiting for clues about the future path of monetary policy at the annual conference, which takes place in late August. Fed Chairman Jerome Powell is scheduled to deliver a speech, and there are expectations that the central bank will shed further light on its plans for a rate hike schedule after it ends its asset purchase program in December.
In a year-end interview, Powell said the Fed had “a reasonable amount of flexibility” to raise rates again if economic conditions warrant it. He has also signaled that the Fed might cut rates again if needed, but he has said that he doesn’t expect to do so soon.
The Jackson Hole meeting has long been a critical influence on markets. It’s separate from the eight pre-scheduled Federal Open Market Committee meetings where the Fed sets interest rates. But the gathering began in 1978 and has become a popular forum for Fed chairpersons to discuss financial and economic issues.
Located at the Jackson Lake Lodge in Grand Teton National Park, in Jackson Hole, Wyoming, the Kansas City Fed’s outpost initially conceived the conference to discuss agricultural trade. In 1982, they chose the location because it was known that Fed Chairman Paul Volcker enjoyed fly fishing and wanted to go. The event has grown to encompass other policy issues and attracts top economists from the Fed and foreign central banks.
Although the dollar’s safe-haven status boosts corporate earnings, it can be a drag when global economic conditions are challenging. That’s because when the dollar rises, it becomes less competitive, making it more expensive for U.S. firms to export goods and services overseas.
Currency trends tend to follow the relative inflation considerations of the dollar versus other major currencies, but other factors can also affect them. For instance, if foreign economies are growing faster than the U.S., they could outperform the dollar.
Haworth says that’s one reason the euro has recently recovered against the dollar, despite the eurozone being prone to recession. But she adds that it’s difficult to see the euro or other currencies overtaking the dollar as a world reserve currency soon. In addition to the relative inflation considerations, other factors include comparative central bank policies and relative political stability.
