US Dollar: Credibility risks for USD – TD Securities
TD Securities argues that Jackson Hole is more about Federal Reserve (Fed) credibility than new guidance for the US Dollar (USD). They see rate expectations staying anchored, but warn that any failure by Chair Warsh to reaffirm the inflation mandate could weigh on USD.
TD Securities argues that the Federal Reserve's credibility, rather than new guidance, will be the focus during the Jackson Hole Symposium. The bank expects rate expectations to remain stable, limiting the potential for significant shifts in the US Dollar's direction. However, a failure by Chair Jerome Powell to reaffirm the inflation mandate could negatively impact the USD.
The risk skew is modestly unfavorable for the USD in the short term. The bank notes that any reassurance by Powell regarding the inflation-targeting framework may only provide limited support for the dollar, whereas a lack of action could further weaken the USD. As investors assess the latest developments in the Middle East, the US Dollar benefits from a cautious market sentiment, while disappointing US consumer sentiment data helps the currency hold its ground.
Gold prices fall after setting a new three-month high, and Bitcoin surpasses $80,000, reflecting a growing risk-on sentiment and improving liquidity conditions.
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