US Dollar: Positioning-driven softness ahead of CPI – BNY

BNY’s Wee Khoon Chong notes that the US Dollar (USD) has been the weakest G10 currency on iFlow metrics as markets scale back expectations for a September Fed hike. The employment miss and reduced tightening odds are weighing on USD, while an asymmetric setup around the upcoming Consumer Price Index (CPI) could trigger either a sharp rebound or reinforce current bearish positioning.

Dollar underheld as Fed odds fall

"Over the past week, USD has been the poorest-performing G10 currency as measured by iFlow scored holdings and scored flows."

"The dollar’s underperformance is partly attributable to the market’s perception that a September hike has become less likely."

"The reduced expectations of Fed tightening will likely continue to weigh on the dollar."

"For USD, the asymmetry heading into the CPI announcement is pronounced: a strong showing, particularly in core services or shelter, would likely reverse the recent repricing and result in a sharp bid, given how aggressively hike odds have fallen."

"By contrast, a soft print or one that is in line with expectations would reinforce the current institutional positioning bias, keeping USD scored holdings low and encouraging continued outflows."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)