The Jackson Hole confirms a new era for the US dollar

Exclusive Capital Research Team

Exclusive Capital Research Team

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Market Brief, Friday, 28th of August, 2020

Fed Chairman Powell announced that Fed officials are formally adopting average inflation targeting (AIT) via an updated and unanimously approved Statement on Longer-Run Goals and Monetary Policy Strategy. This flexible approach to accommodate higher inflation levels without raising interest rates is likely to help the FED eventually reach its overdue inflation target of 2%.

The focus for the pound today will be with the Bank of England's governor, Andrew Bailey, where negative interest rates could be a theme of discussion as Governor Bailey has already stated that negative rates are “part of our toolbox…but at the moment we don’t plan to use them” .

Currencies such as the pound are already highly stretched in terms of positioning therefore any prospect of negative interest rates coupled with unfruitful Brexit negotiations is likely to make way for a precarious landscape for the cable. 

Yesterday evening, US House Speaker Pelosi, after talks with White House chief of staff Meadows, announced that the White House continues to disregard the needs of the American people on coronavirus relief. Speaker Pelosi stated, ‘Democrats are willing "to meet in the middle" from a 3 trillion dollar to a $2.2 trillion-dollar fiscal stimulus package. In contrast, the White House wants a deal closer to $1 trillion. He went on to add, ‘we are willing to resume negotiations once republicans start to take this process seriously’

A prolonged agreement could potentially threaten a US economic recovery.

Gold is holding in longer-term bullish territory, but temporary strength in the greenback has flushed out short term speculative gold positions. The Jackson Hole symposium confirmed a lower for longer stance by the Fed, allowing gold to potentially benefit from lower yields.

And finally, West Texas Intermediate charted an inconclusive session on Wednesday, closing the day with marginal gains and amidst rising open interest. That said, further gains should not be ruled out, always with the immediate target at the $44.00 mark per barrel.

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