Once again, positive data has provided a life raft for the United States Dollar, trading in positive territory for the second day in a row early in the US session.
Overview
US GDP for the second quarter of this year was, on its second reading, revised upwards to show that the economy grew 3.0% in Q2, up from the first reading of 2.8%. In response, treasury yields edged higher as traders hedged their estimates on Federal Reserve easing this year.
As this desk has consistently written, this morning’s GDP release from the US shows that the domestic economy is not necessarily in dire straits as traders may want to believe. It is likely that the Fed will cut interest rates twice this year, which is more than the dot plot says but still substantially less than the 105 basis points of easing that overnight swaps are expecting. USD is still down fairly substantially on a monthly basis, but the price correction of the last two days is, in our view, an appropriate action. The US economy is still growing at a healthy pace, and while the employment picture may give some pause, the macro situation is writ large positive. The Federal Reserve is likely to cut by 25 basis points in September, long telegraphed by Jerome Powell & co. This is substantially less than what was anticipated mid-month after markets panicked and called for an emergency Fed meeting. We anticipate some increase in the larger Dollar Spot Index to close out this quarter as traders readjust to the reality of a Fed that is cautious in all directions.
What to Watch Today…
- U.S. Personal Income, spending, PCE price on Friday
- Monex USA Online is always open.
USD ⇑
The Swiss Franc has lost more than half a percent of ground against the USD this morning and is firmly at the bottom of the G10 barrel today. CHF’s recent strength has revived talks of the potential of an intervention from the Swiss National Bank, which has been markedly dovish this year so far. CHF bulls may be in for a rather rude awakening after an expected cut from the SNB next month, coupled with chances for intervention. Switzerland’s currency authorities, over the years, have not been shy about their outlook for CHF and this morning’s losses may not be enough to assuage both traders and policymakers alike.
EUR ⇓
After touching a 13-month high at the beginning of this week, the single currency is for the second session in a row on the back foot. Inflation data from Germany and Spain slowed more than expected in August, which added to bets on easing from the European Central Bank. USD has reached its strongest position against EUR in more than a week, adding to its gains after the release of US GDP this morning. The Fed and ECB are both expected to cut interest rates next month and while traders still posit that the Fed will ease more than its counterpart this calendar year, such odds are shifting more toward the favor of the US at the time of writing.
