Forex Week in Focus, August 22: PMIs, Fed’s Jackson Hole symposium

The following article is based on research by Marshall Gittler, Head of Investment Research for FXPRIMUS.


This week is relatively quiet. However there are two big things on the schedule:  the preliminary purchasing managers’ indices (PMIs) from the major economies on Tuesday and the Kansas City Fed’s annual Jackson Hole symposium on Thursday and Friday.

The PMIs are expected to be little changed. Nonetheless, much of the world seems to be in an accelerating expansion, the upper right-hand corner of this graph, so little changed wouldn’t be all that bad.

Aug22 1

The EU manufacturing PMI is expected to remain unchanged while the US manufacturing PMI is expected to rise. That difference could be supportive for the dollar. However, as the graph illustrates, EUR/USD has decoupled from the PMIs in recent years, perhaps because monetary policy has become more detached from the business cycle.

Aug22 2

The Jackson Hole symposium is a major event for the global central banking elite. They often present important papers or ideas there that can be market-moving.

The topic of this year’s symposium is “Designing Resilient Monetary Policy Frameworks for the Future.” It will probably look back at previous crises and see what lessons can be learned for how they should conduct monetary policy in the future.

Fed Chair Janet Yellen’s speech apparently will focus on the question of what should be the “equilibrium” level for the Fed funds rate, the overnight interest rate that the Fed controls. The yellow dots in this graph represent the FOMC’s estimate of where that level is, while the blue line is the market’s estimate. Note that the FOMC’s estimates are substantially higher than the market’s.

Given the recent comments by NY Fed President Dudley and the comments over the weekend by Fed Vice Chairman Stanley Fischer that “we are close to our targets,” I would expect Yellen to hint that the Fed is sticking to its view and that rate hikes are still possible. That could push rate expectations higher and cause the dollar to strengthen.

Aug22 3

In the Eurozone, the Ifo indices are expected to contradict the German PMIs. The Ifo indices expected to rise slightly, while the PMI is expected to fall slightly. The Ifo indices could boost the euro somewhat as a result.

Eurozone and German consumer confidence will also be announced.

Aug22 4

Japan announces its inflation data Friday morning Japan time. This will be the last CPI data before the 21 Sep Bank of Japan meeting and so will be closely watched. Slowing inflation could increase speculation that the BoJ will take action and put downward pressure on the yen. We’re likely to get some guidance on that matter when BoJ Gov. Kuroda speaks Tuesday morning Japan time.

Aug22 5

Finally, the pound may get some respite this week as there are no major UK indicators on the schedule.

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