Fed Chairman Powell’s set-piece speech at the Jackson Hole central bank gathering is the focal point for markets today. Economists at Scotiabank analyze USD outlook ahead of themost interesting event of the day.

The USD looks more or less fairly priced for the status quo on rates

After the hawkish-sounding minutes from the July FOMC meeting, Powell may come across as a little more measured. Some of his colleagues appear to think that the Fed has done enough but Powell might want to leave the door open to a little more tightening or stress ‘high for longer’ risks in his comments – if only to keep the Fed’s options open and dampen market expectations for rate cuts ahead.

If September really is ‘live’, he really should encourage swaps pricing to get a little more aggressive, with a 25 bps hike on the 20th reflected as only a 20% risk.

The USD looks more or less fairly priced for the status quo on rates here; a clearly hawkish message from Powell today will lift the USD but a more nuanced approach to the outlook may mean more USD range trading, with the broader risk tone defining short-term USD movement