Trump offers Zelenskiy security guarantees
Traders await Powell’s Jackson Hole speech for guidance
Wall Street steadies near record highs ahead of Jackson Hole
Yen gains after Japanese official calls for higher rates
US and EU highlight security guaranties for Ukraine
The US dollar gained ground against most of its peers on Monday, but it is pulling back today, in the aftermath of the meeting between US President Donald Trump and Ukraine’s President Volodymyr Zelenskiy.
US President Trump told Zelenskiy that the US would guarantee Ukraine’s security in any deal with Russia to stop the war, and pushed for a meeting between Zelenskiy and Putin, with the Ukrainian leader saying that he is ready to meet with the Russian President. European Commission President Von der Leyen also stressed allied unity and security guaranties for Ukraine.
This comes after US President Trump said that there was ‘substantial progress’ in talks with Russian President Putin in Alaska, but it is far from suggesting that a ceasefire is imminent.
Focus turns to Jackson Hole and Powell’s speech
Now, traders are likely to turn their attention back to Fed policy and the Jackson Hole Economic Symposium that kicks off on Thursday. The highlight will be a speech by Fed Chair Powell on Friday as investors seek updated information about the future path of interest rates.
The weakness in recent US data combined with Trump’s reciprocal tariffs that kicked in on August 7 may have revived recession fears, prompting investors to adopt a more dovish stance. However, the acceleration in producer prices supported Powell’s view to remain patient regarding future interest rate reductions.
Thus, even if Powell signals that a September rate cut is firmly on the table, as long as he implies cautiousness and further evaluation of the economic and inflation outlooks from there onwards, his stance may be interpreted as hawkish, as the market is currently fully pricing in slightly more than two quarter-point reductions by the end of the year. This could help the US dollar gain some more ground.
Wall Street traders cautious ahead of JH Symposium
On Wall Street, all three of the main indices closed nearly unchanged yesterday, perhaps as market participants were reluctant to assume large positions while talks between Trump and Zelenskiy got underway at the White House, and ahead of fresh guidance by Powell at Jackson Hole.
If Powell appears hawkish amid the prospect of tariff-induced inflation, equities are likely to retreat due to lower present values resulting from discounting future free cash flows. However, if there is no evidence that the Fed is concerned about a recession, the pullback may remain limited and short lived.
Former foreign minister says Japan must raise interest rates
Flying from the US to Japan, the yen is gaining some ground against its US counterpart, perhaps after veteran ruling party lawmaker Taro Kono, a former foreign minister who is rumoured to be among candidates for becoming a future prime minister, said that Japan must raise interest rates to strengthen a weak yen that has pushed up inflation and brought pain to households.
After Kono’s remark’s the probability of a 25bps rate hike by December has risen to 75%, which means that yen traders are eagerly monitoring headlines about the future of interest rates in Japan. Thus, more hawkish remarks Japanese officials could seal the deal and perhaps allow the yen drift higher.