Yen surges on Abe’s resignation, dollar pressured after Powell, data eyed

Here is what you need to know on Friday, August 28:

The US dollar is on the back foot in the aftermath of a dovish speech by Powell. Stocks are rising despite Trump’s threat to end reliance on China and the week concludes with several data points from all over the world. Japanese PM Shinzo Abe’s resignation is triggering a risk-off response in Japan.

Shinzo Abe, Japan’s longest-serving prime minister, is stepping down. The father of “Abenomics” is suffering from ill health and his deapture caused market uncertainty. Japanese stocks are down and the safe-haven yen is up. A replacement is yet to be named.

Federal Reserve Chairman Jerome Powell announced a policy framework shift – allowing inflation to overheat while employment rises. That implies lower rates and is weakening the dollar on Friday after a whipsaw on Thursday.

AUD/USD and GBP/USD stand out by hitting cycle highs. The greenback’s retreat is moderate as inflation is already low and borrowing costs had already been expected to stay depressed for at least two years. 

See: Fed Rundown: Lower for (even) longer, and what’s next for the dollar after the whipsaw

Gold is marginally higher as the dollar falls but has failed to run far higher as some had hoped. Silver prices are tracking the yellow metal.

President Donald Trump delivered a long acceptance speech at the final night of the Republican Convention. For markets, his threat to end reliance on China “once and for all” stood out, but stocks remain in demand and the safe-haven yen saw no new demand. Recent trade talks between the world’s largest economies were positive. 

Data: US Personal Spending is set to rise and Income to fall in July. The data is impacted by massive government support which remained in place last month. The final read from the University of Michigan’s Consumer Sentiment gauge for August is also of interest.

US second-quarter Gross Domestic Product was revised to -31.7% from -32.9% in the period that most reflects damage from the virus. While initial jobless claims declined to around one million, continuing claims disappointed with 14.5 million. 

Investors are encouraged by a rapid COVID-19 test developed by Abbott, promising results in 15 minutes and costing only $5. Efforts to develop a vaccine – and secure doses from promising candidates – remains in full force, contributing to the upbeat sentiment.

US coronavirus deaths topped 180,000 while cases have topped 5.8 million. In the old continent, infections are rising at a worrying rate in Spain, France, and also Germany. Revised GDP figures for the second quarter are due out on Friday. EUR/USD is trading above 1.1850, driven mostly by dollar weakness. 

Brexit: The Times reports that the EU has set an ultimatum to save post-Brexit trade and security talks and that chief negotiators will hold emergency talks to salvage talks. Andrew Bailey, Governor of the Bank of England, will speak later on Friday in the virtual Jackson Hole Symposium. GBP/USD is trading around 1.3250, around the cycle highs.

WTI Oil is trading below $43 as Hurricane Laura seemed to have spared oil facilities in Texas. Canadia’s GDP figures for June are set to show and ongoing rapid recovery, expanding on the 4.5% increase in May. USD/CAD is trading around 1.31 amid dollar weakness and the rise in oil prices. 

Cryptocurrencies bounced in response to Powell’s speech but retreated afterward. Bitcoin is trading around $11,400. 

More Federal Reserve Updates Permissible Inflation: Markets find upbeat logic in the new policy

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