US Dollar, Gold, Euro, NFPs, Key Fed Inflation Gauge, China PMI

The US Dollar mostly outperformed against its major counterparts this past week. The British Pound, Euro and Canadian Dollars were some of the worst-performing majors while the Chinese Yuan and Australian Dollar fared better. Taking a look at commodities, gold performed well while crude oil prices weakened.

Since the beginning of this month, financial markets have been slowly pricing in a higher terminal rate from the Federal Reserve, causing a steepening of longer-term Treasury yields relative to front-end ones. According to implied policy rates, since July 31st, markets have added over 30 basis points to the 3-year Fed rate outlook.

On top of that, it means financial markets have also been pushing back rate cut expectations. Fed Chair Jerome Powell spoke at Jackson Hole this past week, adding that the central bank is prepared to increase borrowing costs further if appropriate. Sentiment has been responding accordingly, with US equity markets turning lower of late.

Looking at the week ahead, the economic docket is more active. From the US, consumer confidence, the Fed’s preferred inflation gauge and non-farm payrolls are due. Elsewhere, multiple gauges of inflation from key European countries will cross the wires. Financial markets will also get a better look at China’s increasingly fragile economic situation with manufacturing PMI gauges due. What else is in store for markets in the week ahead?

How Markets Performed – Week of 8/21

Forecasts:

British Pound Forecast: External Factors Will Drive GBP/USD, GBP/JPY

GBP/USD is going into the weekend on the back foot as the dollar picks up a small bid after Jerome Powell’s Jackson Hole speech.

Australian Dollar Forecast: Consolidation for AUD/USD and AUD/JPY For Now

The Australian Dollar steadied the ship last week but although it is languishing against a US Dollar that continues to gain ground on the Fed maintaining the tight policy mantra.

Euro Forecast: ECB ‘Sources’ add to Euro Fragility Ahead of CPI Print

EUR/USD on track for a sixth successive week of declines as ECB council communicate caution on rates due to a fragile economy. EUR/JPY vulnerable.

Japanese Yen Forecast: USD/JPY, GBP/JPY Establish and Reinforce Resistance

The Japanese Yen showed some resilience this past week after persistent weakness since the beginning of this year. Still, it remains a long road ahead for USD/JPY and GBP/JPY to meaningfully reverse lower.

US Dollar Forecast: Powell Adopts Hawkish Tone but DXY Eyes Potential Retracement

The Dollar Index (DXY) continued its impressive run ending the week with a hawkish message by Fed Chair Powell. Will the DXY sustain its momentum with the RSI in overbought territory?

— Article Body Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

— Individual Articles Composed by DailyFX Team Members