US financial markets were little moved by the data as investors were focusing on Janet Yellen's speech. Janet Yellen's keynote address at a global gathering of central bankers in the US mountain resort of Jackson Hole is due at 14:00 GMT.
Kansas City Fed President Esther George, whose bank has hosted the conference here since 1978, said the Fed should raise US interest rates gradually, given progress on employment and inflation. She told Bloomberg TV: “I think it’s time to move.” George, the only policymaker to dissent against the Fed's decision last month to leave rates unchanged at the fifth straight policy meeting, said she is "not convinced" that a fundamental rethink is necessary at this point.
Dallas Fed President Robert Kaplan said “the case is strengthening” for a rate hike.
USD reaction to Janet Yellen’s speech today will depend to a great extent on how investors adjust expectations of further policy action. The Fed message is expected to downplay the chances of a September move, which are already low according to the fed funds curve (28%), but Ms. Yellen’s remarks may potentially push investors to raise somewhat their expectations of a rate hike in December. A move in that month is still our scenario, but markets are now assigning only a 54% probability of this outcome, given the Fed prudence so far. Having said that, we doubt that increasing chances of a December hike will offer USD strong support because such a move is already sufficiently priced in by the US forward curve.
We cancelled our EUR/USD bid yesterday due to elevated risk ahead of Yellen’s speech.
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