US Markets

BUZZ-COMMENT-Raging dovish Fed expectations risk USD snapback

Credit: REUTERS/Kai Pfaffenbach

Extremely dovish Fed expectations, waning downside momentum and sizable short dollar positions could all combine to trigger a snapback in the U.S. dollar index after Federal Reserve Chair Jerome Powell's highly anticipated speech at the annual central bankers' conference on Thursday.

Aug 27 (Reuters) - Extremely dovish Fed expectations, waning downside momentum and sizable short dollar positions could all combine to trigger a snapback in the U.S. dollar index after Federal Reserve Chair Jerome Powell's highly anticipated speech at the annual central bankers' conference on Thursday.

Traders expecting easier monetary policy hints of massive new bond-buying or the setting of explicit unemployment goals, have lost little time in selling the dollar and piling into stock markets globally, so the risk of disappointment is writ large.

Powell is likely to seek more firepower and to outline what the Fed could do to improve the efficacy of monetary policy to meet its key goals of steady inflation and maximum employment .

Yet, as Steve Englander of Standard Chartered Bank notes, the "Fed's goal is not to create a dovish earthquake, but to anchor market expectations of long-term easing."

Short U.S. dollar positions are near their highest in more than nine years and EUR/USD is struggling to hold gains above 1.1900, raising the risk of a USD pullback.

The dollar index =USDis likely to consolidate in a 92.00-94.00 range and it is best to wait for rallies to the higher end of the range before initiating short positions.

For more click on FXBUZ

=USD: https://tmsnrt.rs/3hz67Ij

The Fed plots an inflation catchup : https://tmsnrt.rs/3lhvrop

(Krishna Kumar is a Reuters market analyst. The views expressed are his own.)

((krishna.k@thomsonreuters.com))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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