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August 18, 2014 11:51 am

Dollar bulls should target yen on Fed hawkishness

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Janet Yellen speaks at Jackson Hole later this week

The market faces another week rich with monetary policy resonance.

There’s a raft of US housing data, in the middle of which on Wednesday the Federal Reserve publishes minutes of its July meeting.

The Bank of England releases its own transcript the same day.

But it is not until Friday that arguably the most important event is expected to take place: the speech at Jackson Hole by Fed chairwoman Janet Yellen.

Ms Yellen will give her view on labour markets, the prospects for which in the US will play a major role in determining the trajectory of Fed policy.

Currency analysts disagree about how this might affect the dollar.

Lee Hardman at Bank of Tokyo-Mitsubishi UFJ thinks that Ms Yellen will say little to challenge the market’s perception that she still sees significant slack in the labour market, and the speech will merely reinforce her dovish credentials. That will keep short-term yields low and provide little fresh propulsion for the greenback.

But CitiFX says the fact that most traders expect Ms Yellen to be dovish leaves the market vulnerable to any slightly more hawkish slant.

The way to play this is to go long the buck versus the yen, now about Y102.40 for a target of Y104.50, it says.

jamie.chisholm@ft.com

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