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Chair Janet Yellen in the spolight in Jackson Hole

The greenback remains stable as markets shift gears from Wednesday’s hawkish FOMC minutes to a potential dovish Chair Yellen’s speech this morning on the labor market. The latest FOMC minutes have shown that the dovish camp is losing ground and has raised the possibility of a change in view on labor market underutilization and the likelihood of an earlier rate rise.

Update:  Yellen provides no new message – USD stronger

In Yellen’s speech this morning, she is not expected to deviate from her previous view that despite a faster than anticipated improvement in the labor market, sluggish wage growth and underemployment continue to warrant accommodation in the economy.

Preview:  Is a dovish Yellen already priced in?

In Europe, the lack of economic releases and pending ECB President Mario Draghi’s speech in Jackson Hole has the euro trading in a narrow range, unable to break above the 1.3300 handle. Amid a backdrop of ongoing disinflationary pressures and slower than anticipated growth, President Draghi is expected to maintain his cautious outlook and utilize his speech as an opportunity to remind markets that the ECB stands ready to act should stimulus be warranted.

Geopolitical tensions in Ukraine are once again on the rise as 34 Russian aid convoy trucks have entered Ukraine’s borders without Kiev’s assent and were unaccompanied by the Red Cross, as was previously agreed upon. The West, led by the US and European allies have cautioned that the crossing of any military vehicles, despite under the alleged cloak of aid will be considered an invasion.

The conundrum continues for the pound – on one hand, the Bank of England led by Governor Carney has suggested that interest rates could rise before an improvement in wages; while on the other hand, fundamental data relay a different narrative where retails sales have disappointed and inflation remains weak. Without any economic releases on the docket today, focus has turned to the release of housing, consumer confidence and PMI data next week, leading into the BOE meeting scheduled for September 4.

As we head into the North American session, the economic calendar for the US is bare while north of the border, focus will turn to retail sales and inflation data. Following yesterday’s record close for the S&P, US equities remain strong and look to register weekly gains despite US futures slipping this morning ahead of Yellen’s speech.

In Canada, headline inflation for the month of July was softer than expected at 2.1% on an annualized basis, a decrease from June’s print of 2.4%, while core inflation grew at a pace of 1.7%, below estimates of 1.9%. Today’s data provides some relieve to the Bank of Canada as the previous six prints have come it at or above expectations, which would have suggested that inflationary pressures is building and could force the Bank of Canada to take on a hawkish tilt. In other data from Canada, retail sales rose 1.1% in June, stronger than the 0.3% expected. The inability of USD/CAD to breach above the key 1.1000 mark and support at the 200 day moving average of 1.0878 show that the pair is content to trade within a range bound environment.

Karl Schamotta

Karl Schamotta

Director, FX Strategy and Structured Products at Cambridge Mercantile Group.