The dollar index and dollar index futures experienced a slight dip in Asian trading, continuing their losses from the previous night as PMI data unveiled sluggish growth in U.S. business activity throughout August.
These figures have prompted speculations that the cooling economic conditions might limit the Federal Reserve’s capacity to maintain elevated interest rates. Correspondingly, Treasury yields have also receded due to this notion, with the 10-year rate stepping back from its peak spanning over two decades.
All eyes are now fixed on the impending speech by Fed Chair Jerome Powell at the Jackson Hole Symposium scheduled for Friday. Analysts caution that Powell might still convey a hawkish stance on interest rates, given the persistent nature of inflation and the robust labor market.
While the direction of U.S. interest rates remains uncertain, the prevailing consensus points toward an extended period of higher rates, with a potential reduction anticipated only around mid-2024.
The looming prospect of increased U.S. rates spells potential challenges for Asian currencies, as the gap between yields of high-risk and low-risk assets narrows. This notion has inflicted substantial damage on regional currencies over the past year, with little immediate relief on the horizon.
