The softer NFP and CPI data have reinforced their conviction that the Fed is back on the path to cutting, with a 25bp move in September still their base case. The stronger July PPI was only a temporary hiccup and isn’t seen as a game-changer.
Positioning doesn’t look crowded, which means there’s still room for the dollar to fall if Powell leans dovish at Jackson Hole or if incoming data stay on the weaker side. The risks to this view are stronger-than-expected August data, a revival of foreign inflows into US assets, or renewed China weakness that boosts USD safe-haven demand.
Event-wise, at Jackson Hole if Powell nods to a softer labor market, the dollar probably weakens further; if not, markets will wait for September’s NFP and CPI before making the next big move.
Overall bias: Still short USD, but with event and data risks that could easily swing sentiment in the short term.
This article was written by Arno V Venter at investinglive.com.
