US Dollar Index: Range trade persists as data soft – DBS

DBS Group Research economist Philip Wee notes that the DXY Index’s recent recovery stalled slightly above 99 and has reverted to a 98.5–99.0 range after last week’s sell-off linked to higher US long bond yields. He highlights softer US data, receding September Fed hike expectations, and upcoming US PCE and Jackson Hole as key drivers for the Dollar.

DXY capped as Fed bets fade

"The DXY Index’s recovery was short-lived and petered out slightly above 99, returning to the tight range of 98.5-99.0 following last week’s sell-off driven by rising US long bond yields. Although the US Treasury 30Y yield fell by 5.9 bps to 5.165% overnight, extending Monday’s 4.6 bps decline, market bets for a September 16 Fed hike have receded to 38% from 72% at the end of July."

"The US Conference Board consumer confidence report was distinctly soft. The headline index fell to 89.4 in August, below the 90.2 consensus and July’s downwardly revised 90.2 (from 90.8). The US consumer has turned more cautious after following the surprise decline in July retail sales. They were also less confident about future employment prospects, consistent with July’s negative nonfarm payrolls."

"Investors now turn to today’s July PCE inflation report, which is expected to mirror the decline in CPI inflation a fortnight ago. Consensus looks for headline PCE to ease to 3.6% YoY from 3.7% YoY in June, with core PCE seen steady at 3.3%. On a monthly basis, headline is expected to rise 0.1% MoM (from -0.1%), with core up 0.2% (from 0.1%)."

"Fed Chairman Kevin Warsh’s Jackson Hole keynote speech on Friday, August 28, remains the most important event this week. The symposium is viewed more as a credibility event rather than a rate-signalling one."

"Overall, Warsh faces a difficult balancing act: defending the Fed’s independence and price-stability mandate while providing greater clarity on the Fed’s reaction function without abandoning his preference for less forward guidance."

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