Deutsche Bank: Dollar Under Pressure if Waller Hints at New Inflation Metric

On August 28, the dollar remained near a one-week high against major currencies on Friday, as investors stayed cautious ahead of Federal Reserve Chairman Waller's upcoming speech at the Jackson Hole Global Central Bank Conference. With U.S. inflation consistently above the 2% target level, traders have priced in at least one rate hike of 25 basis points from the Fed this year, which has supported the dollar's performance in recent trading days. The market generally hopes to gain more insights from Waller's speech regarding monetary policy and the U.S. Treasury's efforts to lower long-term financing costs, especially given recent volatility in the bond market. However, analysts believe that since Waller has been reluctant to provide clear forward guidance, he is more likely to discuss the latest developments of the five special working groups established during his early tenure at the Fed. Volkmar Baur, a foreign exchange and commodity analyst at Deutsche Bank, noted in a report that Waller has repeatedly emphasized in recent weeks that the Fed's 2% inflation target is non-negotiable, but he has never explicitly mentioned the PCE price index in this context. He believes the Fed may at least be considering adopting different inflation measurement metrics. He stated that if Waller signals something along these lines, it could weaken market expectations for further rate hikes and be interpreted as a dovish signal, potentially putting pressure on the dollar.