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US Hawks vs Doves as Yellen speaks
It is all about the US dollar today.

The FOMC’s Chair Janet Yellen will speak at the Jackson Hole Symposium at 3:00pm London time. Investors world-wide will be seeking and trading any piece of hint vis-à-vis the Federal Reserve (Fed)’s view over the US economy and the future of the US monetary policy.

The US dollar is a touch softer ahead of Yellen’s speech. We expect high, and two-sided price volatility across the currency, equity and bond markets.

Expectations of a September rate hike in the US doubled over the past two weeks. Solid US jobs data, lighter fears about the Brexit, hawkish comments from several Fed members enhanced speculation that the September option is not fully off the table.

The world is wondering how Janet Yellen interprets the current macro situation, especially now that the US economy gives signs of solid recovery and that the major macro risk, the Brexit, is behind us.

In our view, Janet Yellen will certainly keep the highlight on the US economic performance and focus on the macroeconomic data, in order to keep the market alert and fully engaged in the Fed’s decision-making process.

The Fed will be in a position to hike rates when the market will give the green light. In this respect, the most rational way to play is through the economic data, which has printed rather satisfactory numbers over recent months.

As of today, the market gives a 32% chance for an interest rate hike to happen in the US. Although the pricing in the market is rather weak to allow the Fed to eventually act in September, the rising chances suggest that the next rate hike could come sooner rather than later. Yet, it appears that the Fed hawks will perhaps wait for next year, as the market gives a still insufficient 57% probability of a December rate hike.