The United States dollar finally caught a fairly substantial bid this morning after two days of lackluster trading, as the Bloomberg Dollar Spot Index is up roughly half a percent in early US trading today.
Overview
Month-end flows seem to be taking charge of markets at the moment as spot values fall on the last business day of August and are giving USD a boost, heading into a busy second half of the week. The Dollar has, however, still lost nearly two percent of its value through this month regardless of today’s attempt to make a recovery. It’s possible that positive US data tomorrow and Friday could bring about a more substantial paring of such losses, but that does remain to be seen.
US equities, by contrast, have been rather ebullient this month as speculation abounds that the Federal Reserve is finally due to cut interest rates in the middle of September. Markets are awaiting a slew of corporate earnings today, most notably from AI darling Nvidia which alone accounts for nearly 30% of the S&P 500’s returns year to date. Other notable earnings include a call from Crowdstrike, the company that inadvertently caused turmoil amongst many global communications systems last month. Global equities today are fairly flat in the morning as traders hold their collective breath for earnings and other major month-end events coming from US data releases tomorrow and Friday.
Investors are also reassessing their reactions to Jerome Powell’s words in Jackson Hole last Friday. Though, yes, Powell did all but guarantee an interest rate cut in September, market expectations of 50 basis points of easing were likely overblown, and Powell has shown time and time again that he is reticent to spook markets writ large by making outsized moves. Overnight swaps still show that traders expect just north of 100 basis points of cuts this year, but it’s important to note that the Fed’s own dot plot only projects 25. More likely than not, markets and the Fed will meet somewhere in the middle as the US economic state may not be as dire as traders believe.
What to Watch Today…
- U.S. GDP Thursday
- U.S. Personal Income, spending, PCE price on Friday
- Monex USA Online is always open.
GBP ⇑
The Mexican Peso is recovering some of this week’s heavy losses and gaining nearly a percent in early US trading this morning. Reports have floated this morning that Mexican President-elect Claudia Sheinbaum has asked for a judicial reform bill to not be accelerated, the idea of which has caused substantial turmoil in MXN markets this month. Speculation about just how radical Sheinbaum’s administration may be has caused the Peso to lose nearly 14% of its value against USD this year, and any news that shows the potential for policy moderation has a material impact on MXN pricing.
JPY ⇓
The single currency, after tapping a 13-month high earlier this week, has lost nearly two-thirds of a percent of ground against USD this morning as month-end flows take over markets and companies look for Dollars to close their books. Leveraged trading desks have added new downside exposure for EUR for the first time since last week, showing that EUR may be a touch overbought and traders do not necessarily believe the currency deserves to be valued at Monday’s high point. US GDP, due out tomorrow, is expected to show the economy grew 2.8% last quarter, which could continue to give the USD a boost to close out this month amidst a dearth of data from the Eurozone.
