The real rate and USDOLLAR suggest a hawkish delivery at Jackson Hole on Friday, but caution is warranted



The Fed's annual Jackson Hole symposium is due to kick off tomorrow, and the market eagerly awaits Fed Chair Powell's keynote on Friday at 2:00 pm GMT. In addition, the symposium often serves as a platform for market-moving news. For example, the Fed communicated its switch from an absolute to an average 2% inflation target at the 2020 event.

Given the current inflationary environment, Friday should clarify the Fed's monetary policy. Last week's FOMC minutes showed a consensus to increase the benchmark rate. However, there were also concerns about tightening more than necessary, with some market participants contemplating the prospect of a Fed pivot.

To this end, the real rate (top chart) has moved into the bullish zone, between its upper blue and red bands over the last three days. However, this appreciation was matched by the FXCM USDOLLAR basket (middle chart), trading in its bullish area.

As we head toward Jackson Hole, the correlation coefficient has also turned up (green arrow). As such, markets anticipate an aggressive stance instead of the pivot scenario. We expect volatility to increase as Fed Chair Powell delivers his speech, especially if it surprises. As such, caution is advised.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.


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