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- 1. Higher-than-Expected Neutral Policy Rate: • If there is any hint or suggestion that the neutral policy rate could be higher than what is currently expected, this could serve as a catalyst for another round of dollar appreciation. In essence, it would indicate that the Fed might be willing to let rates go higher before declaring its monetary tightening cycle complete.
- 2. Eventual Rate Cuts Receive Prominence: • On the other hand, if there is significant discussion or emphasis on the potential for eventual rate cuts by the Fed, this could cause the dollar to decline and move back into the lower half of its trading range for the year.
- Conclusion: BofA doesn’t expect any strong policy signals to emerge from this year’s Jackson Hole conference. However, they do suggest that the tone of discussions, especially regarding the neutral policy rate or the possibility of rate cuts, could influence the direction of the U.S. dollar.