Published: Tue, August 22, 2017
Business | By Max Garcia

Treasury yields tick lower as investors gear up for Jackson Hole

Treasury yields tick lower as investors gear up for Jackson Hole

The dollar slumped on Monday amid geopolitical tension in North Korea, as investors braced for the annual central banking conference in Jackson Hole this week where the world's top central bankers may signal their next policy actions.

It was a topsy-turvy week for the euro; the beginning of the week saw Germany's annual growth reach four-year highs, while the Eurozone attained six-year highs. The Jackson Hole event provides an opportunity for central bankers to discuss monetary policy with investors waiting for Fed Chair Janet Yellen's economic policy symposium at the end of the week before adding to their positions.

Friday's speech by European Central Bank President Mario Draghi is among the set-piece events at the Jackson Hole meeting, although he is not expected to deliver a new policy message. Still, at a time when inflation is low across developed economies, baffling authorities who thought declining unemployment would push up wages and prices, any contribution they make at the conference could shed light on how much attention they're paying to recent weak prices. The common currency was mostly flat at $1.1816 on Tuesday.

European Central Bank chief Mario Draghi, who famously sent shockwaves at a speech in London one month before the Jackson Hole summit five years ago proclaiming he would do "whatever it takes" to save the euro, will not be making major policy comments.

Similarly, Yellen is unlikely to add any fresh policy insight in her address on Friday but traders will nevertheless be looking for signs on whether the Fed chief is becoming increasingly anxious about low inflation.

"The manoeuvres have prompted a hostile reaction from Seoul's neighbours to the North, claiming that a "merciful strike" will be unleashed upon the U.S. territories of Guam and Hawaii", said Henry Croft, research analyst at Accendo Markets. Receding jitters over North Korea at the start of the week had helped global markets up, only to see it give way once again due to concerns surrounding politics in the US.

The Australian dollar increased to 0.7938 US dollar from 0.7937 USA dollar.

"This in itself suggests that the Governing Council remains to be convinced that it should announce its QE [quantitative easing] tapering plans at its next meeting in September", notes Victoria Clarke, economist at Investec.

The US Dollar Index continued consolidation above 93 levels through August as risk appetite waned and volatility returned to the markets. Low inflation puts pressure on the Fed to take a dovish stance and keep monetary policy loose. While this move below 1.29 levels was largely expected, albeit very delayed, technically we expect to see a further move downwards towards 1.2626 levels.

While the recent run has seen a fresh round of speculative buying coming in, it seems hard for the yellow metal to make a clear break of $1,300 levels and this remains the top end resistance through the initial weeks of September.

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