Gold, Yen, Dollar to Hang on Powell's Words at Jackson Hole

Aug 21, 2023

With treasury yields hovering close to their highest point in the past 15 years, attention is squarely focused on the forthcoming policy speech by Fed Chair Jay Powell this Friday at the Jackson Hole event. The primary interest lies in gauging the current level of hawkishness exhibited by the Federal Reserve.

Anticipations are that Fed Chair Jay Powell will reiterate the sentiment expressed during the July policy meeting, emphasizing the persistence of elevated inflation and the Fed's unwavering commitment to restoring inflation to the central bank's targeted 2%. Naturally, the subtleties within his communication will hold the real significance.

Will his indications suggest that the Fed draws encouragement from the recent series of more moderate inflation metrics, potentially signaling an upcoming prolonged pause in the Fed's actions? Alternatively, will he lay the groundwork for another one or even two additional interest rate hikes? The latter scenario could potentially result in a further strengthening of the US dollar and the continued weakness of gold. XAU/USD finds itself trading below all its moving averages, with the 200-day Simple Moving Average consistently rebuffing any attempts at upward advancement.

Two currencies that warrant close observation for potential intervention are the Japanese yen and the Chinese yuan. Market analysts presently perceive the intervention threshold for the yen to be around 150 against the dollar, while indications point to ongoing intervention efforts concerning the yuan. According to Reuters, state-owned Chinese banks were observed actively supporting the offshore yuan on Monday.