Will the US Dollar Turn Around after Jackson Hole Symposium?

US dollar managed a minor recovery after positive economic data

The US Dollar Index (UUP) managed to recover some of the losses it saw in the last few weeks. Upbeat retail sales reported that consumers spent more than expected in July, and there were upward revisions for June and May as well. Both the Empire State and the Philadelphia Fed Manufacturing indexes beat expectations, and consumer confidence rose to its strongest level in seven months. The US dollar index closed the week ending August 18 at 93.4 as compared to 93.0 in the previous week.

Will the US Dollar Turn Around after Jackson Hole Symposium?

Speculator positions on the US Dollar continued to dwindle lower

As per the latest commitment of traders (or COT) report released on August 18 by the Chicago Futures Trading Commission (or CFTC), large speculators and traders have reduced their bearish positions on the US dollar for the first time in eight weeks. As per Reuters calculations, the net US dollar (USDU) net short positions fell to -$8.8 billion as compared to -$10.2 billion in the previous week. This amount is a combination of the US dollar’s contracts against the combined contracts of the euro (FXE), British pound (FXB), Japanese yen (FXY), Australian dollar (FXA), Canadian dollar (FXC), and the Swiss franc.

Will hawkish talk at Jackson Hole save the US dollar?

US central bankers will be speaking at the Jackson Hole symposium August 24 through August 26. They could remain upbeat about the US economy, especially after the recent pickup in second quarter data. Lower inflation will continue to limit the hawkish tone and limit the expectations for a rate hike, but markets could be given a clear signal of balance sheet unwind this week.

The US dollar could gain from these discussions, but the larger focus will likely be on risk aversion in the US markets. If investors continue to exit stocks, demand for safe havens like gold (GLD), US Treasuries (GOVT), Japanese yen, and the Swiss Franc could go up. The US dollar could gain against other currencies barring the yen and the franc.

In the next part of this series, we’ll analyze how the bond market reacted to last week’s rise in risk aversion.