Derived Data That Drive Results
Synopsis:
Danske anticipates that the upcoming August jobs report will be critical for USD direction. Despite overdone Fed easing expectations and USD weakness, they foresee continued challenges for the dollar in the near term.
Key Points:
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Jobs Report Importance: The August jobs report next Friday will be crucial in determining the near-term direction of the USD. The outcome could influence market perceptions of the Fed's future rate cuts.
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Market Expectations: With the market pricing in 100bp of easing by year-end, there's a strong expectation of a soft landing without further inflation surprises. Despite Fed Chair Powell's dovish guidance, USD weakness has been pronounced, reflecting these expectations.
- Short-Term USD Outlook: While a major USD rally is not expected, the declining USD rates make it cheaper to short the currency. The overall environment of USD weakness aligns with anticipated Fed actions and market pricing.
Conclusion:
Danske expects that the August jobs report will be pivotal for the USD. Although the recent USD weakness might be overdone, the currency is likely to face continued challenges in the near term due to Fed easing expectations and broader market dynamics.
