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Fed Chair Yellen basically repeats her message about the under utilization of the labor markets. While she does acknowledge some improvement, her message is complicated. If things improve more quickly, rates will rise sooner, and if things turn sour, they will rise slower.  The big event is here: Janet Yellen’s much awaited Jackson Hole speech is out and markets are on the move.

Before the event, markets were stabilizing with EUR/USD at 1.3270, GBP/USD around 1.6580 and USD/JPY around 103.70. The dollar is stronger on the news, with USD/JPY moving towards 104.  We did see a cycle high for  USD/JPY and a cycle low for EUR/USD, but no follow through.

Speech highlights

  • No simple recipe – gauging the labor market needs to be more nuanced.
  • Still a lot of under utilization
  • The Fed has 19 indicators
  • Unemployment rate overstates the situation of the job market
  • Rates could rise sooner if the situation improves faster (not new)
  • QE will  end in October (not new).
  • Some parts of the speech come straight from the latest FOMC statements.

Market reactions

The dollar is gradually advancing on the release of the speech. There is nothing really new, so the rise of the dollar is more related to positioning: the dollar strengthened on the FOMC minutes, then fell on expectations for a dovish Yellen, and is now rising as a counter-reaction.

It seems that commodity currencies are less sensitive to her comments.

  • EUR/USD falls to 103.37  – a new 11 month low. The pair is below downtrend support.
  • USD/JPY touches 104, new cycle high.
  • GBP/USD slides to 1.6570.
  • USD/CAD is stable around 1.0950. Canadian data was mixed earlier.
  • AUD/USD is stable at around 0.93.
  • NZD/USD is stable at around 0.84.

More:  Big Dollar is a Big Story


The tone of the FOMC  minutes was relatively hawkish and this sent the dollar higher. There was an unusual balance between those acknowledging an improvement in labor markets, thus wanting an earlier rate hike, and those needing more evidence, wanting to push back a rate hike.

Now, as Yellen is clearly in the dowish camp. What we did know before the event is the title of her speech, and it’s all about labor markets. The big question was: will she signal any policy change or maintain the normal dovish voice. It seemed that a dovish Yellen was already priced in.

More: listen to our Fed focused podcast here: