FOMC and Jackson Hole biggest market motors this week
Last week saw the Pound little affected by positive economic data releases which showed a strong labour market and better-than-expected retail sales. Instead, lingering concerns about a no-deal Brexit continued to put the currency under pressure. Dollar strength also weighed on Sterling; the greenback reach multi-month highs as the Turkish crisis escalated and investors fled to perceived safe havens. Towards the end of the week however, these gains reversed somewhat on news that the US and China are to hold a new round of trade talks next week. The Euro was hardest hit by the Turkish crisis as investors feared for the European banking centre given its significant exposure to Turkish banks. It was further hampered by disappointing inflation releases that confirmed the European Central Bank is justified in its cautious stance. Some recovery in the common currency was seen towards the end of the week as the Lira stabilised amid regional support from Qatar.
The day ahead holds little in the way of significant data releases. Instead, the main stories for the week are likely to be the release of the August FOMC meeting minutes on Wednesday evening (19.00 BST) and the Jackson Hole Symposium, which starts on Thursday. These events will likely help revive the dollar’s rally, to the detriment of Sterling and the Euro, especially since these two may well see a further deterioration in sentiment from ongoing uncertainty about Brexit and Turkey, respectively.
It is widely expected that leaders will strike a hawkish tone in their release of forward guidance for monetary policy at Jackson Hole. This will weigh on cable and be further exacerbated by any signs of a rising probability of a hard or no-deal Brexit following ongoing negotiations.
The pair is vulnerable to central bank rhetoric as the Federal Reserve meets at the Jackson Hole Symposium this week and the European Central Bank release the minutes of its July meeting. With the former likely to reveal hawkish tendencies, while the latter likely to remain dovish, we could see a reversal of recent gains in the EUR/USD this week. Of course, Turkey remains front and centre in terms of currency drivers too.
With no real news yet out of the EU/UK negotiations being held in Brussels, the Pound remains on tenterhooks. There is no meaningful UK data due for release this week so the currency is highly susceptible to Brexit headlines and could trade either way this week.