Commerzbank: The U.S. dollar will come under pressure if Walsh hints at adopting a new inflation metric.

The U.S. dollar held near a one-week high against major currencies on Friday, with investors staying on the sidelines ahead of remarks by Federal Reserve Chair Walsh at the Jackson Hole Economic Symposium. With U.S. inflation remaining above the 2% target, traders are now pricing in at least one 25-basis-point rate hike from the Fed this year, a development that has supported the dollar’s performance in recent sessions. Markets widely hope to glean more details on monetary policy and the U.S. Treasury’s efforts to lower long-term borrowing costs from Walsh’s remarks, given recent volatility in the bond market. However, analysts note that given Walsh’s reluctance to provide clear forward guidance, he is more likely to update on the progress of five special task forces on Fed operations he established early in his tenure. Commerzbank FX and commodities analyst Volkmar Baur said in a report that Walsh has repeatedly stressed in recent weeks that the Fed’s 2% inflation target is non-negotiable, but he has never explicitly referenced the PCE price index in this context. He added that the Fed may at least be considering adopting a different inflation gauge. If Walsh signals as much, it could undermine market expectations for further rate hikes and be interpreted as a dovish signal, putting pressure on the U.S. dollar.