Rebounding from five-month lows, the USD gained 0.4% yesterday as investors turned their focus to Fed Chair Powell’s Jackson Hole speech today for guidance on the path of interest rates. Two Fed officials, Collins and Harker, spoke yesterday, both indicating that they believe it is appropriate for the Fed to begin lowering interest rates soon. “In September, we need to start a process of moving rates down,” Harker said, adding, “We need to start bringing them down methodically.”

The 10 AM release of the text of Jerome Powell’s speech at Jackson Hole confirmed Powell’s implication at the last Fed meeting. The Fed Chair is more confident that inflation is on a path to 2% and that the time to ease policy has come. “The upside risks to inflation have diminished… and the downside risks to employment have increased” is very similar language to that seen in the meeting minutes from the July 31st Fed rate decision. Implied policy easing odds rose for the remaining three rate decisions this year, with four 25-basis-point cuts fully priced by the December decision date.

EUR/USD fell 0.35% yesterday, entering the North American session today essentially flat compared to yesterday’s close after some modest overnight gains. After Powell’s speech, the pair is trading 0.45% higher today and approximately 1.65% higher than this time last week. Data yesterday showed the eurozone economy’s composite PMI rise to 51.2, above the median expectation of 50.1, as the Paris Olympics boosted private-sector growth to its fastest pace in three months. The services PMI rose to its highest level since April, while the manufacturing gauge continued to show weakness, missing estimates. The one- and three-year inflation expectations released today came in slightly above forecasts. The latest inflation readings are released next Friday.

GBP/USD closed flat yesterday and is 0.8% higher today after Powell’s speech, trading about 2.3% higher than this time last week. The pair is now trading at its highest level since March 2022. PMI data yesterday posted beats on all three gauges, advancing further into expansionary territory. BOE Governor Bailey is set to speak later today at the Jackson Hole symposium.

USD/CAD closed 0.2% higher yesterday and is 0.7% lower today after Powell’s speech, trading approximately 1.4% lower than this time last week. The pair last traded at these levels in early April of this year. Canadian retail sales fell 0.3% in June, though stripping out the auto category saw monthly gains of 0.3% versus a median forecast of -0.2%. The advance measure for July showed receipts for retailers rising 0.6%, which would be just the second monthly advance this year.