Sterling continues to consolidate between 1.2670 support and 1.2848 resistance, following last week’s softer UK headline inflation and weak retail sales data. The lack of volatility reflects ‘summer markets’ and this week’s key item is Jay Powell’s Jackson Hole speech on Friday.
The dollar has continued its recent bounce in response to ‘overdone’ July weakness, an uptick in US inflation, some slightly hawkish ‘Fedspeak’ and recently, weakness in US equity markets / ongoing weakness in the Chinese economy fuelling some safe haven dollar inflows. After a few weeks of gains, we may see some position squaring into Powell’s speech (weaker dollar) but the speech itself is likely to remain slightly combative. It’s premature to declare victory on inflation and he may allude to ‘higher for longer’ (on rates) as opposed to signalling a lofty terminal rate. Whilst a hawkish Powell could support
the dollar, markets may have largely discounted such hawkish overtures in the recent dollar rally.
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