USD Rises 0.2% Amid Mixed Economic Data, Fed Meeting Looms

Here’s this week’s overview of the US Dollar:

• In the past week, we saw the US Dollar Index appreciate by 0.2% against a trade weighted basket of its peers.

• Underlying data was mixed once again last week with housing data for both existing and new home purchases taking a marked dip below expectations and below pre-pandemic levels.

• On Friday, data showed that the headline PCE price index came in line with expectations, but the core rates came in slightly higher than forecasts.

• Previous data also showed that the US economy expanded faster than expected at 2.8% in the second quarter, led by an acceleration in consumer demand, but driven by liquidation of savings by members of the public and remaining below the 2021-2023 average of 3.1%. One further data point of note was a 6.6% decline in monthly Durable Goods orders.

• The Fed meets on Wednesday to set interest rates, with a hold in rates nearly fully priced in by markets. Fed Chair Powell’s comments following the meeting will be closely watched as markets are expecting the Fed to tee up a September rate cut.

• In recent weeks, probabilities derived from Fed futures prices now show increased chances of further rate cuts in 2024, with two 25bp cuts now fully priced in by markets and a 70% chance of three such cuts. Volatility in Fed futures is to be expected as forward guidance is eagerly awaited on Wednesday.