Column-Powell's steady hand steers dollar higher: McGeever
By Jamie McGeever
ORLANDO, Florida (Reuters) — Federal Reserve Chair Jerome Powell's speech in Jackson Hole is likely to maintain the 'higher for longer' outlook for U.S. interest rates and bond yields — good news for dollar bulls, especially given the contrasting picture elsewhere in the world.
While the U.S. economy appears to be humming along quite nicely — at a near-6% annualized rate, according to the latest Atlanta Fed tracking estimate — the same cannot be said for the its main rivals, most notably the euro zone and China.
The dollar had already clocked a two-month high against a basket of major currencies before Powell's keynote address at the Kansas City Fed's annual gathering of U.S. and global policymakers on Friday.
Short-dated yield spreads, typically a key driver of exchange rates, have been widening in recent weeks in favor of the dollar over most major currencies including the euro, sterling, yen and yuan.
While it's always dangerous to infer too much from market moves on any given day, especially days prone to knee-jerk reactions to major data or policy events, it is noteworthy that there was no pullback on Friday.
The two-year U.S. yield remained more than 200 basis points higher than its German equivalent, around the widest gap in favor of the dollar this year, and the U.S.-UK 2-year spread hit its widest in two and a half months.
The two-year U.S.-Japanese yield spread, meanwhile, spiked up towards the peaks from July and March that marked levels not seen since the year 2000.
«Yield spreads relative to other developed markets are likely to provide support for the dollar to move into a higher trading range,» said Yung-Yu Ma, chief investment officer at BMO Wealth Management.
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