Today, global market focus shifts to US Federal Reserve’s Jackson Hole symposium. Fed Chair Jerome Powell’s speech will kick off what is expected to be a weekend full of market-moving commentary, and as such, markets have been squaring up positions, which has weighed on the USD. Following the recent release of the US Federal Reserve’s FOMC meeting minutes for July, a first rate cut next month looks to be the case. Several Fed officials have acknowledged a case for rate cuts starting in September and have become more concerned over the labour market. The market will try to gauge how open Powell is to a September cut and, more importantly, look for clues as to the monetary easing path going forward. Looking at Fed fund futures, These interest rate derivative markets are positioned for 200 basis points (2.0%) worth of Fed rate cuts by the end of 2025. Overall, the Jackson Hole weekend will produce some interesting commentary and is expected to lay the groundwork for the Fed’s cutting cycle.
This morning, Bank of Japan (BoJ) Governor Ueda addressed parliament and explained the bank’s reasoning for hiking rates at the end of July. Recall, in July the BoJ hiked its policy rate by 15bp, which came as a surprise to markets and triggered an intense bout of volatility as markets unwound of Japanese yen-funded carry trades. Since then, large speculators have reduced their bearishness to turn net long on the yen, for the first time since March 2021. This implies that speculators see further yen appreciation in the future. BoJ Governor Ueda signalled to parliament that more rate hikes are on the cards if the Japanese economy performs according to their expectations. While the BoJ is expected to normalise monetary policy and continue to hike, the central bank has become more sensitive to the impact it can have on markets.