Gameday for the US Dollar – Commerzbank

Before the Federal Reserve meeting this evening (European time), which will include a highly anticipated press conference, we will receive a series of exciting data releases. The ADP employment survey is likely to receive less attention. This is because the survey is not a reliable predictor of the much more important payrolls, which will be published on Friday, Commerzbank's FX analyst Michael Pfister notes.

Fed is unlikely to take action this evening

"The first estimate of second-quarter growth is likely to be more important. In the first quarter, we saw a contraction in the real economy, but this was mainly due to imports being brought forward in anticipation of approaching US tariffs. Our economists have therefore emphasised for several months that these figures must be viewed alongside the second-quarter figures, which are likely to show the reverse effect."

"These special effects make forecasting growth even more difficult than usual. If growth turns out to be stronger than expected today, this will likely confirm the view of market participants urging a wait-and-see approach to the inflationary impact of US tariffs. Conversely, weaker-than-expected figures are likely to reignite discussions about interest rate cuts. We would probably not have to wait long before hearing vehement calls for interest rate cuts from Donald Trump on social media again."

Regardless of today's outcome, however, the Fed is unlikely to take action this evening. It will probably start to indicate that the first interest rate cut is imminent in September. On Monday, my boss, Thu Lan, hinted that the voting behaviour is likely to show at least one dissenting vote in favour of an interest rate cut, and possibly several. At the press conference, Fed Chairman Jerome Powell is therefore likely to emphasise that the Fed's focus is on the slow weakening of the labour market and the real economy as a whole. Depending on how clearly he announces the interest rate cuts, the US dollar is likely to come under more or less pressure this evening (our economists expect a pronounced cycle of interest rate cuts starting in September).