Fed Chair Powell will give a speech today on the US Economic Outlook at Jackson Hole. The market sees a 75% chance of a Fed rate cut in September, with pricing for a cut having been pared back after a jump in PPI services inflation. Nevertheless, Powell could acknowledge that the time has come for a calibration in rates due to a softer labour market, which would open the way for a resumption of USD weakness.
USD/KRW has rallied towards 1400 this week on the back of a sell-off in AI-related stocks. Investors are spooked by a report released this week that 95% of AI pilots in businesses have fallen short, largely due to a “learning gap” amongst users. The semiconductor-heavy KOSPI index has eased by around 2% this week, indicating foreign equity outflows that are pressuring the KRW. USD/KRW could ease if a leading US AI accelerator company reports solid earnings next week, which should buttress sentiment towards semiconductor stocks.
USD/JPY may ease back below 148, with Japan’s CPI inflation matching expectations and supporting the case for a BOJ rate hike. While headline CPI eased to 3.1% y/y in Jul (Jun:3.3%), underlying core-core CPI (ex-food and energy) remains sticky at 3.4% y/y. Inflation risks are also being priced in JGBs, with the 10Y yield hitting a new 17 year high today at 1.62%. US Treasury Secretary Bessent’s public view that BOJ is behind the curve on inflation will only put pressure for policymakers to keep expectations in check sooner, rather than later.
Quote of the Day
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.”
Alan Greenspan
August 22 in history
Gold discovered in Johannesburg, South Africa, in 1926.
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