Euro extends losses below 1.1650 with all eyes on Jackson Hole

The Euro (EUR) has resumed its recent downward trend against the US Dollar (USD) on  Friday, with investors bracing for the Federal Reserve (Fed) Chairman Kevin Warsh’s speech at the Jackson Hole Symposium due later on the day. The EUR/USD pair trades near 1.1640 in the early European session, on track for a 0.3% weekly decline after having rallied about 2.5% over the previous four weeks.

The main focus on Friday is on the Jackson Hole meeting of central bankers, where Fed’s Warsh is expected to provide further insight into the bank’s plans to tame above-target inflation.

Warsh is reluctant to provide further guidance, but some central bank officials stood out on Thursday, putting pressure to tighten monetary policy amid the stubbornly high price pressures. Kansas Fed President Jeffrey Schmidt said on CNBC that inflation is “still sticky and we've got to continue to find ways to break through" while the Cleveland Fed President Beth Hammack reiterated that it is “time to act,” referring to interest rate hikes.

US inflation remains well above target

US Personal Consumption Expenditures (PCE) Prices Index figures, released earlier this week, revealed that consumer inflation accelerated 0.2% in July, above the 0.1% expected, and that the yearly rate grew at a steady 3.7% rate, almost twice the Fed’s 2% target. The Core PCE Price Index, more relevant from the monetary policy perspective, rose 3.3% in the 12 months to July, also unchanged from the previous month.

Strategists at Scotiabank see the current US Dollar recovery as corrective. “History suggests Jackson Hole can have a significant impact on market pricing,” say the Scotiabank experts, but adding that “1w implied vols are running well below recent averages, suggesting markets may be a little complacent about Warsh’s speech and the potential impact on markets.” Against this backdrop, they “still rather view DXY gains as a correction against a still deeply entrenched downtrend on the charts,” noting that “after a firm rise Wednesday, near-term focus reverts to the index retesting the mid-99 area.”