- It is going to be a toss-up between which central bank outcome will be more dovish this week.
- The Fed Chair Powell speaks on Thursday, expected to lay down the foundations for lower for longer.
- On Friday, the market will be turned into the Governor of the Old Lady who could touch on negative interest rates.
GBP/USD is trading at 1.3198 having printed a fresh high on the day so far at 1.3219 in a rally from 1.3117.
The fact there had been no progress made in trade talks has done little to prevent that pound from rallying midweek ahead of the Jackson Hole showdown.
In most recent news, EU trade negotiator Phil Hogan is reported by Bloomberg to resign today which is yet another potential spanner in the works for Brexit negotiations as the clock ticks down.
All eyes on the Jackson Hole and BoE governor
Instead, the US dollar is sliding into the event where investors will be mostly concentrated on the Federal Reserve’s keynote speech on Thursday at 14.10GMT.
Bulls have capitulated ahead of the speech where a highly dovish outcome is the risk to the greenback.
The July Federal Open Market Committee minutes failed to feed the rally in risk assets, so the stock markets are banking on a lifeline vs the ongoing spread of the coronavirus and bleak economic recovery outlooks.
The reflation and declining real yields narrative have been a thorn in the side for the greenback confirmation from Powell tomorrow that the Fed will keep rates low which could be the nail in the coffin for the DXY already tinkering on the edge of falling down into the abyss.
Meanwhile, investors will want to hear from the Bank of England’s governor Andrew Bailey who is speaking on Friday for some insight into any mention of negative interest rates.
Negative rates are still very much in the playbook and any threat to use such a medium could prove havoc for a vulnerable and potentially overvalued pound.
While positioning data has now likely moved longer, catching up with the spot market, a troubled winter approaches pertaining to messy Brexit negotiations which make for a choppy foundation for cable.
Throw in negative interest rates, then bulls will certainly have their work cut out no matter how weak the dollar is at the time.