19/07/2024
US dollar update
Summary
The US Dollar, measured by the DXY index, experienced significant movements recently, above the 104 mark due to a pause in selling pressure and strong economic data. On Thursday, the dollar index held close to 104, rebounding sharply from a four-month low. The rise was bolstered by positive US economic data, including the Philadelphia Fed Manufacturing Survey, which showed a marked improvement in July, expanding more than expected amid a surge in new orders.
Despite this, the labor market data showed mixed signals. Jobless claims for the week ending July 13 surged by 243K, surpassing initial predictions and the prior revised gain, which contributed to ongoing concerns about labor market fragility. However, these figures did not significantly alter the overall positive outlook on the labor market due to seasonal factors.
Federal Reserve officials, including NY Fed President John Williams and San Francisco Fed President Mary Daly, have maintained a cautious stance towards interest rate cuts. Daly emphasized the need for more confidence that inflation is moving sustainably toward the Fed’s 2% target before considering a rate cut, while Williams dismissed the possibility of a July cut but acknowledged a potential September cut. The Fed remains data-dependent in its approach, with recent economic data suggesting disinflation and dovish market expectations for a rate cut in September.
The CME FedWatch Tool indicates that a rate cut in September is priced in, limiting the upside for the USD. Investors are also considering the impact of upcoming speeches from FOMC members John Williams and Raphael Bostic, with the latter’s comments potentially influencing market sentiment toward the Fed’s rate path.
Externally, the European Central Bank held rates steady, with ECB President Christine Lagarde indicating that the next decision in September is open. Overall, while the US Dollar has shown resilience, the mixed labor market data and cautious stance of Federal Reserve officials suggest a measured approach to future rate cuts.
Market Views & Opinions
Scotiabank in today’s G10 FX Daily report provides its short-term view for EURUSD:
“Neutral/bullish—Spot has edged a little lower from yesterday’s peak near 1.0950 but the minor decline is measured and may be taking the form of a small bull flag ahead of renewed gains (above 1.0935/40 this morning). Intraday, daily and weekly trend strength oscillators are aligned bullishly for the EUR which suggests limited downside movement potential for spot and ongoing risks for renewed push higher. Support is 1.0900/10. Resistance is 1.0980; above here targets EUR gains towards 1.10/1.11.”
ING in a recent post ‘FX Daily: Dollar back to softest levels since March’ concludes about the USD:
“The macro story will probably be a bigger driver of FX in the near term, and today we just see second tier initial claim data. Interestingly, the Fed’s Waller did see one scenario where unemployment could rise quite quickly now that the labour market is in balance, so any big jump in the claims data could hit the dollar. More likely, however, is that DXY remains soft in a 103.50-104.00 range.”
IMPORTANT DISCLAIMER
The information in this report is of a general nature only. It is not a piece of personal financial advice. It does not take into account your objectives, financial situation, and personal needs.
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