The meeting between central bankers last Friday had no impact on markets as the position of the policy makers was already firmly put in place before they met at Jackson Hole.
Powell and Lagarde confirmed their stand on interest rates
Despite the anticipation that this gathering of global monetary policy makers regularly generates, this time it occurred without the central bankers' remarks having any impact on the financial markets.
The truth is that the monetary policy makers' positions had already been clearly established and covered in earlier sessions.
Both the Federal Reserve’s (Fed) chief, Jerome Powell, and the President of the European Central Bank, Christine Lagarde, merely reiterated what was already widely accepted, that interest rates will stay where they are or rise further for as long as required until inflation reaches the 2% target.
Further US interest rates hikes were not ruled out
The 10-year bond's yield increased to levels last seen in 2008, as a result of investors acting on this presumption.
Inflation in Europe is higher than in the US, and significant nations like Germany and the Netherlands are experiencing a technical recession. Because of this last factor, the market is less confident that interest rates in the EU will stay where they are for an extended period of time. As a result, the Euro is under pressure to decline, with the EUR/USD pair losing more than 400 pip in the past month.
Powell, on the other hand, did not completely rule out further interest rate hikes and emphasised the robustness of the economy's data, particularly those related to the labour market and consumption.
JOLTS Job Openings and Consumer Confidence data out today
Today markets can expect economic data from the US, namely JOLTS Job Openings and Consumer Confidence. Later in the week the nonfarm payroll and personal consumption expenditure figures - the data on inflation that the Fed looks at to guide its monetary policy – will be issued.
If these economic indicators continue to be strong, market interest rates are expected to continue to climb and put downward pressure on stock markets and raise the value of the Dollar, as it has in recent weeks. These economic indicators will set the path for the markets throughout the coming week.
Yesterday the stock markets took a break and enjoyed minor advances that can be classed as purely technical.
UR/USD monthly chart, August 29, 2023. Sources: Bloomberg, Reuters
Key Takeaways
- The comments of policy makers at Jackson Hole did not affect markets.
- Jerome Powell and Christine Lagarde confirmed that interest rates will remain stable or go higher until the 2% target is met.
- Treasury yields went to levels not seen since 2008.
- EUR/USD has lost more than 400 pips over the last month.
- Jerome Powell did not rule out new increases in interest rates.
- JOLTS Job Openings and Consumer Confidence data to be released today.
- Non-farm payroll and Personal Consumption Expenditure figures expected later this week.
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