Dollar subdued after data as focus turns to Jackson Hole

By Chuck Mikolajczak

NEW YORK, Aug 27 (Reuters) - The dollar was roughly flat on Thursday after a round of economic data, while attention moved towards a speech by Federal Reserve Chair Kevin Warsh at the Jackson Hole symposium.

Warsh is scheduled to speak at the gathering of central bankers on Friday, where investors will watch for clues on how policymakers plan to navigate a landscape in which higher Treasury yields could do some of the tightening work for them.

The dollar has rebounded 0.35% this week after a 0.83% drop in the prior week after U.S. Treasury Secretary Scott Bessent said the Treasury would double the size of quarterly repurchases of longer-dated bonds, sparking concerns that a shift to a more direct strategy to mitigate the rise in borrowing costs could lead to a debasement of the dollar.

The dollar index, which measures the greenback against a basket of currencies, edged up 0.05% to 99.18, with the euro off 0.03% at $1.1646.

"I'm surprised the dollar's not a bit stronger actually. The FX market, honestly, is in a bit of a trance," said Erik Bregar, director of FX and precious metals risk management at Silver Gold Bull in Toronto.

"Warsh is saying the Fed needs to speak less so that the price signals from the bond market are cleaner, and then Bessent wants to distort those signals by intervening. It makes no sense. So that's why it's even more important for Warsh to set the record straight tomorrow, because if he doesn't, the dollar could actually puke."

BNY senior EMEA market strategist Geoff Yu said in a note that the clearest pattern from the last three years of the Jackson Hole meeting is "persistent dollar selling into and through month end, irrespective of the precise policy message," with "the speech determining the magnitude rather than the direction of the seasonal flow."

JOBLESS CLAIMS FALL, TRADE GAP WIDENS

The greenback showed little reaction to data from the Labor Department that showed weekly initial jobless claims fell for a second straight week to a seasonally adjusted 203,000, below the 208,000 estimate of economists polled by Reuters.

A separate report from the Census Bureau showed the U.S. goods trade deficit widened to $118.8 billion in July from $101.4 billion in June, marking the largest goods trade gap since March 2025.

Data on Wednesday showed inflation rose more than expected in July, boosting expectations that interest rates could stay restrictive through the end of this year and briefly lifting expectations for a September rate hike from the Fed to over 40%.

But expectations for a hike of at least 25 basis points at the central bank's next meeting slipped back to 35.9% on Thursday, according to CME FedWatch.

While the focus turns to Warsh's speech, many market participants expect the central bank head to refrain from offering any guidance on monetary policy.

As the Jackson Hole conference began, a trio of Fed officials — Kansas City Fed President Jeffrey Schmid, Cleveland Fed President Beth Hammack, and Chicago Fed President Austan Goolsbee — voiced their concerns about the U.S. inflation outlook.

Against the Japanese yen, the dollar strengthened 0.09% to 159.45 after Bank of Japan Deputy Governor Ryozo Himino said timely rate hikes would help avoid an inflation spike that could force abrupt tightening later, but stopped short of signalling an imminent rate increase.

Sterling softened 0.06% to $1.3585 as investors pared expectations for a Bank of England rate hike this year.

(Reporting by Chuck Mikolajczak. Additional reporting by Satoshi Sugiyama in Tokyo and Johann M Cherian in Bengaluru. Editing by Conor Humphries, Mark Potter and Aurora Ellis)