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Dollar seen likely to swing more on Jackson Hole inflation credibility
TD Securities expects rate expectations to stay anchored, with USD moves driven more by perceived inflation credibility than by new forward guidance.
TD Securities strategists expect Kevin Warsh’s Jackson Hole speech to center on structural themes, including productivity, AI-driven growth, and a Federal Reserve regime change, rather than providing clear new direction for interest rate expectations. They said USD price action is likely to be driven more by volatility and inflation credibility perceptions than by fresh forward guidance.
The strategists argued that markets could react more strongly to whether Warsh addresses inflation credibility. They said any hawkish clarification may offer only limited support for the dollar, but a failure to tackle inflation credibility could weigh more materially on USD.
From an FX standpoint, TD Securities suggested Jackson Hole may generate more volatility than a sustained trend for the dollar. They pointed to recent Warsh appearances that have led investors to scale back expectations for further Fed hikes despite ongoing concerns about elevated inflation.
Overall, TD Securities described the risk skew as modestly USD-negative, saying the absence of a hawkish reaffirmation of the Fed’s inflation mandate is likely to weigh, while any effort to “clear the air” on credibility may help only slightly.