Currency Fluctuations following Jackson Hole Symposium

Discussion and Analysis by Charles Porter: 

Currency Market Impacts of the first major Jackson Hole symposium event 2017.

The Dollar has seen dramatic intraday devaluation against other major currencies including the Euro and Pound Sterling. Live commentary and reaction was provided on our Twitter Feed whilst Chair of the Federal Reserve Board, Janet Yellen, spoke at the Jackson Hole symposium in Wyoming. Against the Pound, the Dollar fell by a maximum of approximately 0.51% in seven minutes.

Expectations were low for a major revelation coming out of Wyoming from Janet Yellen today. However, markets always listen intently to an occasion where figures of this stature gather because of the concomitant propensity for overhaul. Yellen’s speech, however, fulfilled low expectations. Her speech focussed primarily upon financial regulation and even within this traditionally low-impact, low-volatility, channel, she advocated “modest” action.

Despite some a more ambitious set of expectations hoping to see Yellen addresses the macroeconomy and inflation, there was no mention of monetary policy tightening. As the economy cements its recovery following the credit crisis, each evasion of monetary policy tightening will increase the expectations for an upcoming adjustment of the interest rate. Upon this occasion, we expect immediate market volatility as the market prices in the interest change, uncertainty variation and adjusts to price new risk and anticipated demand.

Graphical illustrations of significant currency changes are presented below this article. For now, markets and our analysts look towards Draghi’s speech later at the symposium. Following his speech earlier this week and the Euro’s subsequent appreciation, it is plausible to see either a reversal of the gains made there or an exaggeration of the Euro’s consistent year to date appreciation. Currency markets will be most interested in whether the European Central Bank President addresses the strength of the Euro and the impending need to end the Eurozone stimulus purchasing programme, quantitative easing. Given the symposium theme, “Fostering the Dynamic Global Economy”, currency stability comments and an indication of stimulus curtailment could well be witnessed.

EURO—-US DOLLAR

Above: This graph shows the intraday Euro-US Dollar exchange rate. This rate, equating the two most traded currencies in the world, depicts a maximum change of 0.72% within minutes of Yellen’s speech commencing. The comparable size of the Eurozone and US populations, despite their currencies being used to highly different degrees as a reserve, could entail similar, if not more substantial, movements within the Euro.

POUND STERLING—US DOLLAR

Above: This graph depicts the Cable rate, Pounds Sterling-US Dollars. With a magnitude of around 0.5%, the impact that the Jackson Hole speech had upon currency markets is anything by insignificant.

US DOLLAR—SOUTH AFRICAN RAND

Above: Depicted over the same time period, the graph above shows the Dollar/South African Rand exchange rate. The downward trend this afternoon coincides with Yellen’s speech and represents a sudden devaluation of the Dollar against the Rand.