Deutsche Bank strategists note that EUR/USD traded at 1.165 as markets await Fed Chair Warsh’s Jackson Hole speech, which could shift expectations for the September Fed meeting. They highlight that market pricing still assigns a 35% probability to a hike, and recent Fed commentary shows a divide on how restrictive policy should be.

Jackson Hole and divided Fed views

“Before we get on to that however, the market focus today will be on the Jackson Hole symposium, where Fed Chair Warsh is speaking at 3pm London time. This is a significant one, as the speech is often used by Fed Chairs to make big announcements or send policy signals. Indeed, last year saw former Chair Powell acknowledge “the shifting balance of risks”, which set the stage for rate cuts to resume the following month.”

“And with market pricing for the September Fed meeting still in the balance (35% chance of a hike), today’s speech is particularly important.”

“With all that to look forward to, we actually heard from several Fed speakers yesterday, which demonstrated the current divide on policy. Some suggested that more restrictive policy was required, including Cleveland Fed President Hammack, who voted for a hike last time. She reiterated that “I think it’s appropriate for us to put some restraint there to help bring inflation back down to target”.”

“But Boston Fed President Collins said that “I continue to see rates as mildly restrictive”. And Chicago Fed President Goolsbee said he wanted “evidence that this inflation shock is not going to be persistent”, but he also said “I’m OK with waiting as we’re getting that.””

“Looking at the day ahead, the main highlight will be Fed Chair Warsh’s speech at the Jackson Hole symposium. Otherwise, we’ll hear from the Fed’s Hammack and the ECB’s Schnabel.”