Central Bankers imply policy pivots at Jackson Hole

Claire Hogarth26/Αυγ/2014Currency Updates


The pound ended down against the dollar for the seventh consecutive week, its worst losing streak since the 2008 financial crisis, as investors priced adjusted expectations of Interest Rate hikes in 2015 into the market. Its flat performance on Friday was attributable to investors squaring their positions ahead of the Jackson Hole Symposium speeches from Yellen and Draghi respectively.

Yesterday saw sterling gain 0.3 on the euro in spite of the bank holiday following weak IFO business conditions data out of Germany.

Today we have mortgage approvals but there is little data of note out of the UK this week.


Yesterday’s German IFO Business Climate data for August showed a 106.3 reading, down from 108 in July and 0.7 below expectation. This will have done little to cheer Draghi following last week’s remarks at Jackson Hole. Draghi used his slot at the conference to signal his intention to provide additional central bank growth support laying the groundwork for quantitative easing. This, combined with his admission that expectations for inflation within the zone are dropping, led the euro to hit 11 month lows against the dollar. Draghi is looking to create the image of himself as an active central banker, remarking that monetary policy plays a central role in boosting aggregate demand and speculating that the risks of doing ‘too little’ outweigh those of doing too much, which would potentially lead cyclical unemployment to become structural.

No data of note today, with the key numbers out of the Eurozone this week coming from the German unemployment rate on Thursday and Eurozone wide inflation on Friday.


Yellen’s speech began by setting the dollar bulls running as she said that job gains will likely precipitate an earlier than expected US interest rate rise. She also acknowledged that the progress made since the financial crisis in both unemployment and growth has been remarkable. However she sought to temper this excitement by explaining that in her view the labour market has yet to fully recover and that weaker data in the latter half of the year will negate the need for rises. She followed this by introducing a new metric to get quants saliva flowing. Her newly minted Labor Market Conditions Index (LCMI) will measure unemployment, labour force participation, hiring and quitting rates, job vacancies and several other metrics weighted in order to provide a more holistic view of US employment data. It seems likely this new indices will be used as a key indicator of when the Fed will move on interest rates.

Yesterday we had Markit Services PMI come in at a disappointing 58.5, against 59.5 expected and last month’s 60.8. Resultantly the dollar ended the day flat against sterling.

Today we have consumer confidence data and durable goods orders for July. GDP on Thursday will likely be the key market mover for the week.


Written by Claire Hogarth

Marketing Executive at Ebury. English Literature graduate from the University of York and a motivated professional.