Dollar Slips as Jackson Hole Speech Looms

August 26, 2016 Wall Street Journal

By: Chelsey Dulaney

The dollar slipped Thursday as investors awaited a speech from Federal Reserve Chairwoman Janet Yellen.

The WSJ Dollar Index, which measures the U.S. currency against 16 others, was essentially flat after being down as much as 0.2% earlier in the session. The greenback rose against the Japanese yen and Swiss franc but fell against the euro and many emerging- market currencies.

Investors will dissect Ms. Yellen’s speech at the annual conference in Jackson Hole, Wyo. for clues on the path of U.S. interest-rate increases. Traders have been hesitant to bet on higher U.S. rates amid weak economic growth and productivity data, but upbeat commentary from FED officials in recent days has pushed up expectations for rate increases.

Federal-funds futures, a popular vehicle for expressing views on the central bank’s policy outlook, showed investors assigned a 57% likelihood of the Fed raising rates by December, according to CME Group data. That is up from 51% on Wednesday.

Stephen Casey, senior foreign exchange trader at Cambridge Global Payments, said he expects Ms. Yellen to sound a more optimistic tone on the prospect for rate increases, which should support the dollar.

“I think the market has absolutely no faith in the Fed at the moment and they’re punishing the U.S. dollar,” he said. “Tomorrow I’m expecting [Ms. Yellen] to be a little bit more hawkish.”

Expectations of higher interest rates tend to boost the dollar, as higher borrowing costs make the U.S. currency more attractive to yield-seeking investors.

Meanwhile, a Commerce Department report Thursday showed that new orders for durable goods—aircraft, industrial machinery and other products designed to last at least three years-posted their largest monthly jump since October.

A separate report showed the number of Americans applying for their first week of unemployment compensation fell again last week, the latest sign a strengthening labor market.

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