Dollar Slumps on New Taper Message

Fed Chair Jerome Powell offered no signal on the timing of the taper at Jackson Hole and that left the market more confident that a September move was coming. But it was the way Powell and other Fed speakers began to shape the taper message in a new way. Gold had its 2nd biggest weekly gain of the year and the US dollar fell across the board after the speech, while risk trades soared. US pending home sales top the economic calendar to start a busy week. Ashraf's latest Youtube video identifies the 2 new ways the Fed is shaping the taper message, while addressing the latest signals from the Gold/Silver ratio (see detailed chapter description below)

A series of Fed speakers ahead of Powell highlighted various cases for tapering soon and at varying paces, but the Chair offered little. He said that at the most-recent FOMC meeting on July 27-28 he was of the view that the taper should start this year. Since then, he noted there was a strong jobs report but also the further spread of the delta variant. Without expanding on the relative weight of either of those factors, he said they will be carefully assessing incoming data.

The message the market took from that is to keep a close eye on economic data – especially this Friday's non-farm payrolls report --- but that even a strong report wouldn't lead to a Sept taper announcement.

The US dollar slumped 40-80 pips across the board, with the heaviest losses against the commodity currencies as US equities rallied 0.9% to fresh records.

The market now will shift to a hyper-focus on a Nov or Dec taper (there is no Oct meeting) but a one month difference is negligible in the larger scheme. What's longer-lasting is that Powell and the FOMC are in no reason to hike. He again highlighted that inflation should be transitory, noting that durable goods and energy together have added 1.8 pp to year-over-year inflation – factors that should level off or contribute disinflation later.

For the week ahead, it's a busy one leading up to non-farm payrolls but starts with a quiet US calendar featuring only pending home sales at 1400 GMT.