Dollar jumps, but pain could be ahead after Powell – Money News
Investing.com–The U.S. greenback jumped Monday, but additional positive aspects are more likely to show difficult significantly towards main European currencies, BofA mentioned, pointing to growing bearish quant alerts that counsel pain ahead within the wake of Federal Reserve Chair Jerome Powell’s dovish remarks on the latest Jackson Hole Symposium.
The US Dollar Index, a measure of greenback power towards a basket of six main currencies, jumped 0.6% to 98.205.
“USD downtrend continuation signals have broadened, and positioning analysis is bearish USD vs EUR/USD, GBP/USD, CHF/USD, and SEK/USD,” BofA strategists mentioned in a latest notice. This shift displays growing skepticism in regards to the greenback’s power as traders recalibrate amid altering financial situations and coverage outlooks.
This comes as Powell hinted at potential easing within the close to future because the steadiness of dangers have shifted from upside inflation to draw back within the labor market.
“With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance,” Powell mentioned in remarks at Jackson Hole on Aug. 22.
The shift from Powell weighed on the greenback, prompting technical and positioning indicators to favor European currencies.
The British pound, Swedish krona, and Norwegian krone are more likely to benefit from strain on the greenback , in keeping with Bank of America’s cross-asset regime-switching, or CARS, model, which confirmed bullish alerts for these European currencies towards the greenback.
But it isn’t simply European FX that’s more likely to capitalize on the greenback weak spot. Emerging market currencies such because the Mexican peso, Brazilian actual, and South African rand additionally current positive aspects towards the greenback, aligning with the broader trend, the strategists added.
Powell’s Jackson Hole remarks provided a important trace towards financial easing, tilting sentiment towards the greenback in European markets. As markets digest these alerts, the interaction of quant fashions, technical ranges, and Fed steerage counsel a more cautious greenback trajectory within the months ahead.
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