Yellen might focus on medium and long-term issues
From Bank of America Merrill Lynch:
The key new information that the rates and FX markets will receive this week will be through the Fed's economic symposium in Jackson Hole. The theme of this year's symposium is "Designing Resilient Monetary Policy Frameworks for the Future", which should focus on medium- to longer-term policy issues and operational structures. We expect Fed Chair Yellen's remarks on Friday will focus on these topics as opposed to providing explicit guidance on the near-term policy outlook. If Chair Yellen does provide policy guidance, she is likely to reiterate her prior remarks noting an additional rate hike is possible in coming months assuming economic data continue to show signs of improvement.
We do not expect her comments to have much of an impact on market pricing for the near-term Fed outlook and believe that the market will continue to assign very low odds to a September rate move. It is likely that the Fed will want to preserve the option of a December rate hike and believe the market should continue to assign roughly 50% odds of a rate hike by the end of this year, which remains our economist's expectation for the timing of the Fed's next move.
As a result, the USD impact is likely to be limited with the currency likely to take its cue more from the broader risk environment. An at bay Fed will support a continuation of the pro-carry environment we have been in and risks seeing the dollar come under further pressure until data justify a more significant and sustained re-pricing of 2017 and 2018 expectations. Ultimately, dollar downside is limited by the residual expectation of some Fed hikes, set against continued policy easing by many G10 central banks.
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