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Jackson Hole Summit to Determine Fate of the U.S. Dollar

By , Currency Strategist
19 August 2011 22:33 GMT

After three consecutive weeks plagued by poor economic data from around the globe, the fourth week of August offers some reprieve as little significant data is due from the economic spigot. However, with a revision downward of U.S. gross domestic product from the second quarter expected – which could very well fall short of expectations – as well as the crucial Economic Policy Symposium in Jackson Hole, Wyoming, an event attended by the world’s prominent economists and policymakers, the following week will continue the trend of recent volatility across risky assets.

USD Durable Goods Orders (JUL): August 24 – 12:30 GMT

U.S. Durable Goods Orders are expected to have risen by 2.1 percent after receding by 1.9 percent in June, an incredibly disappointing print considering May’s better-than-expected 2.0 percent figure. The median forecast, according to a Bloomberg News survey, showed that the paneled 76 economists expected a 0.3 percent gain in orders.

If demand remains low, the U.S. economy will suffer, as consumption represents approximately 70 percent of the aggregate growth figure.It appears that the recent slowdown in consumer spending, not only in America, but abroad, as demand remains low in large economies such as Japan, has started to weigh on the manufacturing sector in the United States. Join a DailyFX analyst for live coverage of event!

GBP Gross Domestic Product (YoY) (2Q P): August 26 – 08:30 GMT

Surveys indicated that the growth figure released on July 26 should have registered at at 0.8 percent, and but the actual reading was slightly lower, at 0.7 percent year-over-year. The quarterly print was on target, at 0.2 percent. The next print, being the first revision of the second quarter data, is expected to come in line on both figures. The declining rate has been a disappointment for the country, which is seemingly stuck in a stagflating state, that of low-to-negative growth and high inflation.

Coupled with recent austerity measures passed by the British government, which unleashed a chain reaction of riots across England, and a stronger British Pound, a slightly lower reading is a plausible scenario. The print is unlikely to spark considerable price action, unless the reading is significantly off the mark.

USD Gross Domestic Product (Annualized) (2Q S): August 26 – 12:30 GMT

The U.S. economy experienced slower economic growth in the second quarter of 2011, the first reading showed, with the GDP figure registering a 1.3 percent annualized rate, versus the 1.8 percent expectation. The revision is forecasted to show a 1.1 percent reading, adding on to the pile of disappointing data out of the world’s largest economy over the past few weeks.

After this past week’s disappointing data releases – the consumer price index was higher than expected (3.6 percent year-over-year versus 3.3 percent expected in July), existing home sales disappointed (-3.5 percent in July) and an abysmal print on the Philadelphia Fed report (-30.7 vs. 2.0 expected in August) – it appears that the American economy is not only slow, it is entering a state of stagflation, similar to the British economy. A reading below the 1.1 percent expectation is probable. Join a DailyFX analyst for live coverage of event!

USD U. of Michigan Consumer Confidence (AUG F): August 26 – 13:55 GMT

At the preliminary reading on August 12, the U. of Michigan consumer confidence reading for the month of August fell to its lowest level in 1980, printing at 54.9, well below the forecasted reading of 62.0, according to a Bloomberg News Survey. An ailing labor market coupled with a housing sector that can’t recovery has certainly weighed on confidence, despite recent liquidity injections from November 2010 to June 2011. With the U.S. economy continuing to deteriorate, at a seemingly faster pace on a week-by-week basis, a revision downward is likely, though initial forecasts project a 56.0 reading – such a reading would be a shock, especially given the state of American equity markets over the month of August.

USD Jackson Hole Economic Policy Symposium: August 26 – 14:00 GMT

Federal Reserve Chairman Ben Bernanke’s speech at the Economic Policy Symposium will be speculated on by nearly all market participants this week – brokers, traders and pundits alike – as the global economy, including the United States’, teeters on the verge of catastrophic collapse. While the Federal Reserve Bank of Kansas City describes the event as “a forum for central bankers, policy experts and academics to come together to focus on a topic that is not necessarily of immediate concern, but instead looks into the future at emerging issues and trends.”

This won’t be the case this symposium, considering the state of global economic affairs. Any hints of a third round of quantitative easing – or lack thereof – will determine the fate of the U.S. Dollar for an indefinite period of time. After last year’s announcement that further easing was a policy option, the Dollar slid drastically, and has been the world’s worst performing major currency since Chairman Bernanke’s speech last August.

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio@dailyfx.com

Follow Christopher Vecchio on Twitter: @CVecchioFX

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19 August 2011 22:33 GMT