The greenback trades on the back foot, and markets still await Jackson Hole (Daily analysis 27.08.2021)

27 Aug 2021 9:29|Bartosz Sawicki

The week that is now coming to an end was weak for the dollar and good for risky markets: stock indexes rose, commodities rebounded. However, the most important event at the end of August is still ahead of us.

Recently, the US dollar has been losing the earlier gained ground on the foreign exchange. So far, the EUR/USD pair has edged higher towards the 1.18 mark and managed to retrace the majority of the mid-August collapse. Given a clear strengthening of the risk appetite among investors, traditional safe havens, namely the Japanese yen and the Swiss franc, have recently performed poorly. One must, however, remember that the key risk event of the week is still to take place.

Markets on Friday with their heads turned to a mountain resort

The central bankers' symposium is underway in Jackson Hole, culminating in today's speech by the Fed chair. In the past, the August conferences at the resort in the Rocky Mountains have included important statements, but this time we do not expect fireworks and positive news for the dollar. After all, the announcement that asset purchases will begin to expire this year will not be news to investors. Given the recent statements, policymakers would like to make a decision based on at least one more labour market report - the next one is scheduled for September 3rd.

If the report confirms the good condition of this sphere of the economy (in June and July the change in employment exceeded 900,000 jobs, there are about 5.5 out of over 22 million jobs left to be recovered), the natural occasion to announce the decision will be the meeting at the end of next month with the quarterly revision of the forecasts. However, this scenario is already well "digested" by market participants. If fears prevail, the start of the monetary stimulus may be postponed or the process may proceed slowly. This means pushing back the first possible date for a rate hike, which would naturally hit the dollar. Therefore, the US currency is in a situation where the risks outweigh the opportunities. We believe that the room for its strengthening has been exhausted. The EUR/USD should rise towards 1.20 in the last part of the year.

27 Aug 2021 9:29|Bartosz Sawicki

This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.

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