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And if the answer is yes, could we see the dollar resume its rally once her  speech is released?  

Let’s see the case for a dovish Yellen and why this may already be priced in:

Update:  Yellen provides no new message – USD stronger

The case for a dovish Yellen

Yellen is a known dove and her  view on the job market has been that there is too much slack: too many discouraged workers on the sidelines that will enter the job market once things improve, so that the US is still very far from full employment.

Her speech in Jackson Hole focuses on the labor markets, so she could express these views once again, clinging to low wages, a “real unemployment rate” (U-6) of over 12% and other factors while  viewing the recent improvement with caution.

Fed Chair Yellen is in the dovish side of the FOMC,  so she differs with the “many” members in the FOMC that support acting sooner. She is in the camp with “many” others needing more evidence of improvement in the labor markets.

So, after the not-too-dovish minutes, Yellen could tilt back the expectations for a rate hike to the more distant future, and use her weight as Chair and also use the  spotlight of  the Jackson Hole Symposium.

The case that this is already priced in

After the aforementioned minutes, the dollar naturally strengthened. However, the reaction was not that strong against some currencies.

In addition, we had a positive stream of better than expected  releases from the US:

And how did the dollar react?

It shrugged them off. The greenback even sold off against others. As there was no major geopolitical news since then, it seems that there is a strong case that the a dovish Yellen is already priced in.

Will she be dovish? Maybe, but that will not necessarily be surprising.

Will she use her first Jackson Hole speech to signal the beginning of a change in policy, beginning in September, and come out more hawkish? We cannot rule that out.

What do you think?  What will Yellen do and how will markets react?

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