The U.S. Dollar has seen a pause in its three-day decline as traders await further data that could provide clues on the Federal Reserve's interest rate decisions.
Overview
The anticipation is high for the annual review of US jobs data and the Fed meeting minutes later today at 2 PM, which are expected to shed light on the potential for interest rate cuts. The Buck’s recent weakness has been driven by bets on rate cuts, but there is speculation that the drop may be overdone. The market is pricing in almost 100 basis points of cuts this year, which has already been factored into the dollar’s valuation to some extent.
Investors are particularly focused on the upcoming Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole symposium, which could be decisive for the market’s direction. There is concern that signs of excessive weakness in the jobs data could revive fears that the Fed has delayed rate cuts for too long. Economists from Goldman Sachs Group Inc. and Wells Fargo & Co. expect the government’s preliminary benchmark revisions to show a significant downward adjustment in payroll growth, potentially as large as a million jobs. This could add new fuel to concerns about the US labor market and influence the dollar’s movements in the week ahead.
What to Watch Today…
- Jackson Hole Symposium Friday
- Monex USA Online is always open.
MXN ⇓
The Mexican Peso has weakened significantly, dropping 1.8% and extending losses in the past two days. This movement marks the Peso as the worst-performing currency thus far this week, influenced by the strengthening of the JPY, a key funding currency for long positions in the Peso. The rise in USD/MXN one-month implied volatility to 14.75%, the highest in the region, has also reduced the attractiveness of the Peso to carry traders. We will get releases of both the Gross Domestic Product and Consumer Price Index tomorrow.
EUR ⇓
The Euro’s movement this week is influenced by a variety of factors, including central bank decisions ahead of the Jackson Hole symposium, where there is a divergence among major central banks. The ECB has already cut its benchmark rate, and there is anticipation for further cuts, while the Fed has not yet initiated rate cuts. The market is betting on Fed Chair Jerome Powell to reinforce the case for cuts at the symposium, which could impact the Euro.
European stocks are expected to rise, following gains in Asian equities and a positive session on Wall Street. The MSCI ACWI Index, which tracks both emerging and developed equities, is heading for a ninth day of increases, the longest run of gains since December. For the upcoming week, the market’s attention will be on the Eurozone inflation final readings, Switzerland trade, and the German Producer’s Price Index.
