Dollar Drifts as Investors Eye Powell Speech, Yen Stays Near Intervention Zone
Overview
The US dollar remained within a narrow range on Tuesday as traders assessed the developments in the Middle East and prepared for a series of speeches by central bank officials, with Federal Reserve Chair Powell taking center stage. The yen also remained close to the crucial 150 per dollar level, keeping investors on edge for any potential intervention by Japanese authorities.
Yen’s Safe Haven Status
The yen, despite its recent weakness, continues to be seen as a safe haven asset similar to the US dollar and the Swiss franc. It has been benefiting from demand due to the ongoing conflict in the Middle East. Japan’s top financial diplomat, Masato Kanda, emphasized the yen’s safe haven status and its role in geopolitical turmoil.
Geopolitical Concerns
Geopolitical events remain a key driver for markets in the upcoming week, as investors weigh the risks of escalating conflicts and monitor the US authorities’ approach to prevent the spread of the conflict to other parts of the Middle East region. Analysts believe that geopolitical tensions will continue to impact market sentiment.
Fed Chair Powell’s Speech
All eyes are on Federal Reserve Chair Jerome Powell, who is scheduled to speak on Thursday. This speech is part of a busy week of addresses by regional bank heads. Investors will closely analyze Powell’s remarks to gauge the monetary policy outlook. The Federal Reserve officials will enter a blackout period before the Fed’s upcoming meeting.
Rate Hike Expectations
Fed funds futures traders are currently pricing in a 33% chance of an interest rate hike in December and a 10% chance of a hike in November. However, Federal Reserve Bank of Philadelphia President Patrick Harker has stated that the central bank should avoid creating additional pressure on the economy by increasing borrowing costs.
Outlook for the Dollar
Currency strategist Christopher Wong suggests that the dollar is likely to be range-bound for now. Factors that may support the dollar include the expectation of higher interest rates, relative US growth resilience, and concerns about broadening conflicts. However, less-hawkish comments from the Federal Reserve suggest a potential pause in rate hikes, which could limit the upside for the dollar.
Impact on Other Currencies
Other currencies are also experiencing various dynamics. The British pound, for example, is down 3.7% for the month due to concerns about wage data and potential rate hikes. The Australian dollar has risen, while the New Zealand dollar has fallen after consumer inflation hit a two-year low, reducing expectations of further cash rate hikes.
Overall, market participants are closely monitoring geopolitical events, central bank speeches, and economic indicators to assess the future direction of major currencies.
