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Dollar rallies ahead of Jackson Hole

The US dollar is rallying ahead of this week’s Jackson Hole meeting, with some investors eyeing the possibility of Federal Reserve chair Janet Yellen hinting at a steeper rate of monetary policy tightening despite scepticism from many analysts.

At pixel time, the greenback is up 0.5 per cent against the pound at $1.2840, and is strengthening 0.4 per cent against the euro at €1.1765. The broader dollar index, which measures the buck against a basket of peers, is up 0.3 per cent at 93.44.

Viraj Patel, foreign exchange strategist at ING, said that this Friday’s speech by the chair was likely to be a non-event, but could yet surprise investors and push the dollar higher.

“If chair Yellen does allude to a steeper Fed tightening path, then not only would short-term US rates and the $ move higher, but there is only one direction for risky assets, and that is down,” he said. “This is certainly the case if US or global politics also continues to weigh on broader risk sentiment in the near-term.”

The greenback has fallen 11 per cent against the euro since the start of the year, as turmoil in the White House and uncertainty over interest rate rises weighs on the buck. Lee Hardman, currency analyst at MUFG, said the dollar would remain under pressure in the coming weeks, held back by continued political uncertainty.

Heightened US political uncertainty could add to concerns in the coming months ahead of the required debt ceiling extension in the autumn. US Treasury Secretary Munchin provided reassurance when he stated that raising the debt ceiling was priority for the Trump administration when Congress returns.

The US dollar has weakened in the run up to the previous two debt ceiling stand offs and thereby poses some downside risk for the US dollar in the coming months.