Weekly FX Chartbook: Over to Policymakers – Fed’s Powell, Kamala Harris, and BOJ’s Ueda in Focus Weekly FX Chartbook: Over to Policymakers – Fed’s Powell, Kamala Harris, and BOJ’s Ueda in Focus Weekly FX Chartbook: Over to Policymakers – Fed’s Powell, Kamala Harris, and BOJ’s Ueda in Focus

Weekly FX Chartbook: Over to Policymakers – Fed’s Powell, Kamala Harris, and BOJ’s Ueda in Focus

Macro 7 minutes to read
Charu Chanana

Head of FX Strategy

Key points:

  • USD: Two-way risks but Powell on Friday could point towards a Sept rate cut
  • JPY: Markets positioning for Powell-Ueda divergence again
  • GBP: PMIs could keep economic resilience in focus
  • AUD: No data out to question the delay in RBA’s easing
  • CNH: More PBoC easing remains likely

------------------------------------------------------------------------------------------------------

USD: Powell Won’t Break Market’s 25 vs. 50 bps Cut Dilemma

The Federal Reserve's Jackson Hole Symposium, scheduled for August 22-24, is highly anticipated as it will provide key insights into the Fed's thinking on the neutral rate and the future path of monetary policy. Chair Jerome Powell's speech on August 23 at 14:00 GMT will likely emphasize the effectiveness of the current restrictive monetary policy in controlling inflation and cooling the US economy. Powell is expected to discuss the Fed's dual mandate, with particular attention to both price stability and full employment.

Fed officials have been hinting at a September rate cut more openly now, and Chair Powell will likely follow suit with his fellow policymakers. However, the focus will also be on whether Powell hints at a potential 50 bps rate cut at the September FOMC meeting. While labor market deterioration led to the markets expecting a bigger rate cut in September, data since has been mixed with upbeat retail sales still signalling a resilient consumer. This could keep Powell wary of sending a strong signal on the magnitude of the first rate cut. Also, any clear risks of a larger rate cut could also signal a policy mistake from the Fed and higher recession risks. Thus, the speech will carefully balance these concerns while leaving future policy decisions open, depending on upcoming data releases. The August jobs report, due on September 6, in essence holds the key to the magnitude of Fed’s rate cut rather than Powell at Jackson Hole.

The bigger focus from Jackson Hole should be on the discussions around neutral rate, the interest rate at which monetary policy neither stimulates nor restrains the economy. This will also bring questions around whether inflation target should be higher, and could be a key input on where the terminal rate could be in the current cycle.

Macro: Can Harris Maintain Momentum?

The Democratic National Convention (DNC) from August 21-24 will be a crucial juncture in the 2024 US Presidential election cycle. With Vice President Kamala Harris now the Democratic nominee, the convention will serve as a pivotal platform for solidifying party unity and setting the stage for the general election campaign.

Anticipated highlights include keynote addresses from prominent figures such as former President Barack Obama, who will likely stress the importance of unity and voter engagement in key battleground states. Harris is expected to showcase her vision for the future, emphasizing the administration's achievements and outlining her plans to address ongoing challenges in healthcare, climate change, and economic inequality.

One of the key moments will be Harris’s acceptance speech, where she is anticipated to present her policy agenda and strategies for countering Republican criticisms. She faces significant challenges, including turmoil in the Middle East, a slowdown in U.S. job growth, and persistent voter concerns about inflation. Additionally, she can expect intensified attacks from the Republican camp and closer scrutiny of her policy proposals. Her speech will be crucial in rallying the base and attracting undecided voters, setting the tone for the campaign's final stretch. Overall, the DNC will aim to energize Democratic supporters and build momentum for the upcoming election, positioning Harris as a strong contender for the presidency.

For the markets, Harris's nomination could signal a shift from the “Trump trade,” which has been characterized by a focus on deregulation, tax cuts, and trade uncertainties. Investors might anticipate greater regulatory oversight and increased focus on social and environmental issues under Harris, influencing sectors like clean energy and healthcare. The Harris trade might involve positioning in industries that benefit from her policy agenda, contrasting with the Trump trade's emphasis on traditional energy and financial deregulation.

JPY: Ueda Could Bring Back Focus on Rate Hikes

On August 23, Bank of Japan (BOJ) Governor Kazuo Ueda will be addressing Japan's parliament in a special session, convened to scrutinize the BOJ's unexpected decision to raise interest rates on July 31. This decision led to significant market volatility, including the biggest stock market drop since 1987 and a sharp rise in the yen, which has raised concerns among lawmakers.

Governor Ueda is expected to defend the BOJ's decision by highlighting Japan's economic data, particularly the weak yen and the rising national core CPI, which reached 2.6% YoY in June, with expectations of further acceleration to 2.7% in July. Ueda will likely argue that the rate hike was a necessary step to manage inflationary pressures and that the BOJ remains committed to its goal of stabilizing prices and ensuring sustainable economic growth. Additionally, Ueda might express confidence that wage increases from the spring labor negotiations are contributing to higher consumer prices, bringing the BOJ closer to its sustainable 2% inflation target.

Additionally, Japan's economy has shown signs of recovery, with real GDP growth rebounding to an annualized 3.1% in Q2 2024, compared to a contraction in the previous quarter. Private consumption growth has also turned positive after four quarters of decline, providing further justification for the BOJ's move.

Despite the market's reaction, the BOJ appears poised to continue its path toward policy normalization, with Ueda signaling that further rate hikes could be on the table if economic conditions remain favorable. However, he may adopt a more balanced tone to avoid a repeat of the recent market turmoil, echoing Deputy Governor Shinichi Uchida's cautious stance. This approach may do little to halt the yen's recent gains, that have been somewhat erased because US soft landing continues to look achievable. If US recession concerns resurface, there is a risk of further unwinding in carry trades, especially if the BOJ continues its trajectory of rate hikes.

US soft landing hopes were re-affirmed last week, but USD remained weak as markets remain positioned for Fed rate cuts. Safe-havens JPY and CHF declined, while activity currencies GBP and AUD led the gains in FX.
Our FX Scorecard saw momentum turning positive for precious metals as well as AUD and NZD. Negative momentum appears to be accelerating for the Chinese yuan and the US dollar.
The CFTC positioning data for the week of 13 August saw yen positioning turn to a net long for the first time since 2021. Some shorts were also covered in CAD, NZD and CHF but offset by selling of GBP and EUR.

-----------------------------------------------------------------------

Recent FX articles and podcasts:

Recent Macro articles and podcasts:

Weekly FX Chartbooks:

    FX 101 Series:

     

    Quarterly Outlook 2024 Q3

    Sandcastle economics

    01 / 05

    • Macro: Sandcastle economics

      Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

      Read article
    • Bonds: What to do until inflation stabilises

      Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

      Read article
    • Equities: Are we blowing bubbles again

      Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

      Read article
    • FX: Risk-on currencies to surge against havens

      Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

      Read article
    • Commodities: Energy and grains in focus as metals pause

      Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

      Read article

    Disclaimer

    The Saxo Group entities each provide execution-only service, and access to analysis permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular, no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

    Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
    Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
    Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

    None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

    Saxo Markets
    88 Market Street
    CapitaSpring #31-01
    Singapore 048948

    Contact Saxo

    Select region

    Singapore
    Singapore

    Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

    Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

    The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

    The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

    This advertisement has not been reviewed by the Monetary Authority of Singapore.

    Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.