Whilst it was a significant event in its own right, the chances are that most people around the world were more or less unaware of the existence of the Jackson Hole Economic Policy Symposium, which took place in Kansas City between 24th and 26th August. It was a gathering of professors, economists and chief executives from around the world, coming together to deliver and listen to panels and discussions on topics such as business dynamism, global trade and income inequality. Events of this kind take place regularly, of course, and only a few, such as the G8 and G20 meetings, or perhaps the glamorous likes of the Davos Group, are high profile enough to impact on the mainstream media.
This was particularly the case where the Jackson Hole Symposium was concerned, since events such as the latest North Korean missile launch and tropical storm Harvey were easily large and dramatic enough to block any access to the front pages. The lack of coverage can also be put down to the relatively technical and ‘dry’ nature of the issues being discussed, but two of the speeches at Jackson Hole had a direct and instant impact on the Forex markets, and in both cases it was because of what wasn’t said, rather than what actually was.
The fact that the relative strengths of the dollar and the euro can have a direct impact on the day to day living standards of ‘ordinary’ people hardly needs stating; the impact of the post referendum slump in the value of the UK pound on the wider economy and the household budgets of the British population is a sharp and all too vivid illustration of the fact that foreign exchange rates are far from being merely technical ephemera.
The first illustration of the power of an event like Jackson Hole came on Friday August 25th, when the Euro rose by 1% and continued to rise before hitting $1.20 on Monday 28th August, a position which represented a two and a half year high. This also represented the sixth month in a row that the euro had gained on the dollar, the best run of its kind for five years.
The rise in the euro was generally seen as being a response to the Jackson Hole speech delivered by ECB President Mario Draghi. Anyone wondering what it was that Draghi said that had such a dramatic impact can stop wondering right now. It was what Draghi didn’t say that boosted the euro, and more specifically the fact that he didn’t make any reference to the strength of the euro, thus indicating that he was perfectly happy with its current valuation, and, more importantly, would not be taking any action to correct it (for the record, Draghi concentrated the bulk of his speech on topics such as global trade).
The general euro to dollar position was further bolstered when Federal Reserve Chair Janet Yellen gave a speech which didn’t mention US monetary policy. Once again, the absence of a topic was taken to have specific meaning, in this case that the dollar would remain relatively weak against the euro, and that the single rate rise which the markets are already expecting before the end of the year (and which is therefor already priced in) would be the only one to take place.
The lesson of Jackson Hole, therefore, is clear; anyone who thinks that playing the markets wisely means listening carefully to what politicians say has to adjust their expectations and pay equal attention to what they don’t say.