Fed Framework Tweak Prompts Whipsaw Response, Higher Dollar

Fed Chair Powell's highly anticipated speech at Jackson Hole played into the hands of those looking for market volatility, as the Fed Chair unexpectedly disclosed that the Fed would be switching their policy framework to one of Average Inflation Targeting, suggesting the Fed would tolerate above-target inflation for a longer period of time. This initial market response was to weaken the greenback, which boosted most major pairs and resulted in new cycle highs for AUD/USD.

This was, however, swiftly reversed, with the Powell speech doing little for those looking for the mechanisms or specific features of the new policy tweak, which was scant on detail. As a result, the USD reversed course, and ended up being one of the strongest in G10 at the close.

JPY was the worst performer despite a mixed performance from US equities, although USD/JPY once again failed to make a convincing break of the 50-dma resistance.

Jackson Hole remains a focus Friday, with a speech from BoE governor Bailey a highlight. French CPI, Canadian GDP, US personal income/spending and MNI Chicago Business Barometer are the data highlights.