For now, trading has been muted, with gold, the dollar and others trading in tight ranges as investors prepare for a key speech from Federal Reserve Chairman Colin Powell.
FXTM market analyst Han Tan has written an analysis and forecast of the market impact of Powell’s speech, as follows:
While the S&P 500 and Nasdaq are busy making new highs, the DOLLAR index and gold have been down and low in recent sessions.
Last week, the DOLLAR index rebounded from support at 92.1 and is now closer to the psychological level of 93, maintaining a month-long sideways trend.
Gold, meanwhile, has been content to trade below the $1,950 level and may still be affected by the plunge of 3.67% on Aug. 19 and 5.69% on Aug. 11.
Tomorrow, however, that could change forever.
On Thursday, global investors will be closely watching a speech by Federal Reserve Chairman Jerome Powell at an online symposium in Jackson Hole.
The symposium is an important annual gathering of the world’s leading central bankers. Mr Powell is expected to brief markets on the Fed’s new efforts to tackle US inflation.
The Fed began reviewing its monetary policy framework last year, with a focus on its strategy for fighting inflation.
That could mean a big change from the fed’s 2 per cent inflation target, first announced in 2012, which it has barely met in the years since.
Why does this matter to dollar and gold traders?
Keep in mind that the main driver of recent moves in the dollar and gold has been the shift in us inflation expectations over the past few months.
The speculation is that the Fed will tolerate a pick-up in US inflation, which would erode the purchasing power of the dollar and prompt investors to abandon it for gold, traditionally seen as a hedge against inflation.
On Thursday, Mr. Powell was expected to at least signal the Fed’s willingness to target inflation above 2%.
If the Fed chairman confirms this view in his August 27 speech, it will push the dollar and gold out of their respective sideways trends and the dollar could continue to fall while gold resumes its upward trajectory.
But if investors are disappointed by Powell’s equivocations on Thursday, the fed will hold its FOMC meeting on September 15, solstice and 16, when it will formally unveil its new strategy.
When such an announcement is announced, it is still likely to shake global markets as well as the dollar and gold.
After all, the Fed’s comments matter to markets, as evidenced by the reaction of the dollar and gold to the minutes of the July FOMC meeting released on August 19.