The US Dollar (USD) retains a firm undertone in quiet trade ahead of Powell’s remarks at 10ET. A rebound in risk appetite is giving a mild boost to EM FX, however, with the ZAR, KRW and MXN outperforming the core majors and the USD, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

USD firm versus majors

"US data reports yesterday were mixed—weaker than expected Initial/Continuing Claims and Philly Fed survey data versus very robust PMIs—with the PMI data prompting a stronger response from the dollar and yields. Swaps are less persuaded by the prospect of a 25bps cut in September now and have moved to reprice risks around the outlook for rate reductions over the balance of the year, with a bit less than 50bps of easing reflected through December."

"Cautious comments on the rate outlook from Schmid (voter) and Hammack (non-voter), in keeping with their usual perspectives, added to the lift in yields and the USD but Collins (voter) said a rate cut 'soon' (i.e. September) may be appropriate if the labour outlook worsens. Goolsbee (voter) reiterated that September is a 'live' meeting. The August NFP data, released on September 5th, may effectively be the make-or-break factor for a September cut now."

"Dollar gains on yesterday’s data might have pre-empted a cautious-sounding Fed chair at Jackson Hole and, in the event he appears cool on the idea of easing, the dollar may not gain much. Leaving the door open to a September cut will nudge the USD a little lower while a clearly dovish lilt to comments will likely dump the USD back to near this week’s low. Regardless, we still rather think that USD gains are unlikely to stick. The Fed will ease policy sooner or later and other constraints on the USD outlook—the softening in US exceptionalism, potential erosion in Fed independence and weak fiscal policy—remain very much intact."