DXY is this morning breaking under 102.16 – the low seen during the flash crash of Monday 5 August. There is no flash crash underway today and instead, the dollar’s decline looks to be part of an orderly adjustment cycle as the Fed prepares to cut rates.
Fed communication will be the headline story for this week. It starts today with some introductory remarks from our favourite Fed speaker, Christopher Waller, at 16:15 CET today. Wednesday then sees the release of the FOMC minutes from July – when the Fed switched to re-emphasising its dual mandate of both maximum employment and price stability. Friday then sees the main event of the week, where Chair Jerome Powell speaks on the economic outlook at the Fed’s Jackson Hole symposium. In addition, Wednesday sees some provisional annual benchmark revisions to the payrolls report, which could see some downward revisions to job gains made in the year to March 2024.
While some may be arguing that the dollar does not need to sell off much further, since a Fed easing cycle to 3.00/3.25% is already priced, we would suggest caution in that the Fed cycle has not even started yet and any softer US data could mean Fed rates start to get priced at accommodative and not just neutral.
At the same time, dollar price action has been soft. Gains made on the back of last week’s robust July retail sales have proved fleeting and today’s dollar weakness is not being led by softer US rates. It therefore seems like speculators are looking to explore some broad dollar weakness ahead of what should be the first Fed cut on 18 September.
As mentioned above, the only event on the US calendar today are those remarks from Christopher Waller. Let’s see if DXY can press 101.75 today, below which a move to 101.00 beckons.
Chris Turner
