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Talking Points:

- GBP/JPY, GBP/USD eye breakdowns from August swing lows.

- Fed hike odds down to 18% for September, 50% for December.

- FX market volatility will run higher next week with the FOMC and BOJ meetings - it's a good time to review risk management principles.

The speeches from Federal Reserve officials at the Jackson Hole Economic Policy Symposium in August may have been the nadir of hawkish commentary ahead of next week's FOMC rate decision. In anticipation of what should have been a stretch of hawkish priming, the end of August saw rate hikes odds around 45% for September and 60% for December.

Since then, as US economic data has waned - the US Citi Economic Surprise Index is down to -9.5 from +43.1 on July 26 - Fed officials were anything but commital to a hike in the immediate future. Indeed, Fed Governor Lael Brainard's speech on Monday made clear that a "new normal" of thinking is emerging among policymakers, that suggests the rate normalization process will be slower and the ultimate rate will be at a lower peak than in previous hiking cycles. The rationale seems clear: with the US economy near "full employment," the lack of wage and inflation pressures points to a clear slack in the labor market that needs to be catered to.

For the US Dollar, the shift in tone and weakness in US economic data ahead of the September FOMC meeting has been anything but constructive; the USDOLLAR Index has been mired in a six-week range. Now, Fed funds futures contracts are only pricing in an 18% chance of a rate hike next week and only a 50% chance of one in December.

Read more: BOE Hints at Rate Cut Potential; USD Finally Sees Important Data

--- Written by Christopher Vecchio, Currency Strategist

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