There weren’t see evidence that the dollar rebound was driven by geopolitics, and it appeared more like US Dollar (USD) bears were setting a higher bar to justify the expensive dollar selling. Strong US data yesterday all but confirmed that tendency, sending short-dated USD swap rates and the dollar higher, ING's FX analyst Francesco Pesole notes.
"The third release of 2Q GDP revised growth higher from 3.3% to 3.8%, with personal consumption looking much healthier at 2.5% (previous revision 1.6%). But what probably mattered even more was the second consecutive drop in initial jobless claims, from 232k to 218k, well below the 227k one-year moving average. The picture there couldn’t be more different from two weeks ago, when claims had spiked to 264k, a print that is looking increasingly like a fluke. Finally, durable goods orders surprisingly rose 2.9% MoM in August, and home sales figures were also better than expected."
"The dollar hadn’t had such a slew of good data in a while, and positioning squeezes likely helped the move. But we think more good news is needed to keep the dollar going, and we see substantial risks of a correction today after a USD rally that looks slightly overdone according to our model. The trigger could be August’s personal income/spending or core PCE, which we expect at 0.2% MoM, in line with expectations. That could be enough to bring the pricing for December Fed easing back into the 40-45bp area (now 39bp)**.** We expect DXY to ease back below 98.0 into next week’s payrolls."