More hawkish Powell in Jackson Hole could send dollar rallying and unmask 2001 peak
The dollar index regains traction on Wednesday after bulls paused previous day and the price pulled back from new marginally higher 20-year high at 109.19.
Overall negative situation due to the impact from the war in Ukraine that sent a shockwaves across the Western world’s energy markets and negatively impacted all sectors of economies, skyrocketing inflation which so far shows no signs of easing, prompt traders into safety of US currency, while aggressive monetary policy tightening by the US Federal Reserve, in fight to tame soaring inflation, added to dollar’s strength.
From the technical point of view, studies on all larger timeframes (daily / weekly / monthly) are firmly bullish, although monthlies are overextended, supporting dollar’s advance.
The action cracked pivotal Fibo barrier at 109.14 (76.4% retracement of 2001/2008121.02/70.68 fall, with sustained break here to generate another strong bullish signal.
Fundamentals also work in favor of the greenback, with key event – Jackson Hole symposium of central bankers – being in focus this week.
Investors await a speech from Fed Chair Jerome Powell, who is expected to reiterate the Fed’s readiness to do all necessary to bring the inflation towards 2% target, but Powell’s rhetoric will be closely watched.
The dollar may surge if Powell keeps current strongly hawkish stance, or possibly signal further acceleration of the central bank’s action.
In such scenario, 2001 peak could easily come in focus, as more hawkish Fed would widen the gap between the US and other major central banks’ policies that would result in significantly more expensive dollar.
On the other hand, softer tones from Powell will mean that the central bank remains on track for further policy tightening, but at a slower pace that would extend the period of restrictive monetary policy and further actions will be more data-dependable, but the such decision would deflate dollar.