All eyes on Powell’s critical speech as markets lick Afghan wounds

Investors are eager to hear from Fed Chair Powell and his plans on tapering the bank’s bond-buying scheme and after hawkish comments from his colleagues and as the bank’s preferred inflation measure is released. The terror attacks in Afghanistan continue having an adverse impact. Gold and Bitcoin are off the lows.

To taper or not to taper: Federal Reserve Chair Jerome Powell will take the stage in the virtual Jackson Hole Symposium and the fate of the $120 billion/month purchase program is in focus. The fact that the conference is held online has lowered expectations for withdrawing stimulus, yet rising inflation and employment have shown the economy is improving.

Powell is a dove and will likely wait for the bank’s September meeting. The dollar has been stabilizing ahead of the event, with EUR/USD trading above 1.1750, GBP/USD hovering around 1.37 and USD/JPY clinging to 110.

Hawks awaken: Ahead of Powell’s speech, his colleagues Esther George, James Bullard and Robert Kaplan have all spoken in favor of reducing support to the economy. Kaplan seemed to reverse somewhat dovish comments he voiced last Friday.

Data: US Gross Domestic Product grew by 6.6% annualized in the second quarter, marginally below estimates but due to falling inventories. Jobless claims met expectations. Just before Powell’s speech, investors will eye the release of Core PCE – the Fed’s preferred gauge of inflation. A small acceleration from 3.5% to 3.6% is forecast.

Afghanistan: Multiple explosions in Kabul left some 60 dead, among them 12 American servicemen. The violence complicates evacuation efforts and could lead to further US involvement, especially after President Joe Biden pledged to hunt down the terrorists. Markets dropped on Thursday but seem calmer on Friday. The clock is ticking down toward the August 31 deadline for leaving.

COVID-19 cases continue rising in the US and stabilizing in other areas. UK infections remain elevated and are having a negative impact on the pound.

Oil prices remain on high ground, with WTI Crude Oil hovering around $68 while Gold has advanced to $1,800, recapturing this psychologically significant level.

Cryptocurrencies have bounced off the lows. Bitcoin is changing hands around $47,000, Ethereum is above $3,100 and Cardano at around $2.55.

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