The US dollar slightly increased on Thursday as investors remained cautious following weaker-than-expected economic data that clouded the interest rate outlook ahead of the Federal Reserve’s Jackson Hole symposium. The safe-haven dollar index rose 0.15% as 10-year US yields saw their sharpest one-day slide in over three months due to a slump in US business activity growth. Meanwhile, surveys showed a decline in Europe’s manufacturing output and services activity, weighing down on the euro, and British factory output slumped, pushing the pound lower. As traders awaited Fed Chair Jerome Powell’s speech at Jackson Hole, moves in the market remained small.
The cautiousness among traders stems from the possibility of surprises during Powell’s speech. Data suggesting stronger-than-expected economic growth could heighten concerns about inflation, while a cooling labor market, weak PMI data, and downward trending CPI may signal that interest rates are close to their peak. Meanwhile, the Turkish lira stood at 27.2200 against the dollar ahead of Turkey’s central bank rate decision for August. The central bank is expected to raise its policy rate, which currently stands at 17.50%, to 20% according to a Reuters poll. However, there is uncertainty about how much further the central bank can go, adding pressure on the lira.
In addition, the Chinese yuan stabilized at 7.2769 per dollar due to state-bank buying in recent sessions. The market is looking for more clarity on the future intentions of the Turkish central bank and the US Federal Reserve, as generic promises may not be sufficient to convince the foreign exchange market. Overall, market participants are awaiting speeches and statements from central bank officials to provide direction and insight into the future course of interest rates and economic policies.