Dollar selling pressure may gain momentum

Jackson Hole symposium is focusing on an important economic issue that the US and the world economies are facing and it is going to be the most significant event risk for the week. At the conference, Fed Chairman Jerome Powell will be reviewing the monetary policy. 

The event will be live-streamed on August 27. The Fed has kept aggressive stimulus measures since the beginning of the coronavirus outbreak. Recovery from the economic downturn faced a highly uncertain path. Investors and policymakers are concerned about the Fed’s decision. 

The Fed has made it evident that it will do anything to preserve financial stability. 

There are worries about the integrity of financial markets. Easy access to liquidity has supported companies that may otherwise be sinking. However, if the Fed hints at less-aggressive easing, it could be difficult for assets born and raised in an accommodative environment. 

Concerns about a breakdown may lead to aggressive credit decline and liquidation. The problem will be aligning buyers and sellers who may have no interest in exchanging at their corresponding price levels. The subsequent volatility would likely leak into broader financial markets. It would require the Fed again to reconcile and stabilize an uncertain market it indirectly helped to create.

If consumer-related data surpasses market expectations and supports the economy’s positive outlook, the US dollar selling pressure may gain momentum.

The current situation

The current economic condition has been described as the worst since the Great Depression. However, the stock market beat expectations to hit a record high. 

The CitiGroup Economic Surprise Index has been hovering at all-time highs and beat Wall Street expectations. This also supports the point that analysts and policymakers may have overestimated the severity of the economic recession. 

If some critical data in the statistics dropped in line with the broader trend of outperformance, it could pressure demand for safe-havens. Keeping this in mind, traders may be getting ready for another week of dollar weakness.