A big week lies ahead for markets. There is plenty of US data to sift through, but the NFP update at the end of the week is the main focus for traders looking for guidance on how aggressive a widely expected Fed rate cut on September 18 will be, notes Shaun Osborne, Chief FX Strategist at Scotiabank.
Last week’s USD bounce plays out ahead of NFP data
“The US Dollar (USD) rebound that began last week has extended a bit today after a quiet session on Monday while North America was out. USD short-covering is the primary motivation behind USD gains, although the risk backdrop appears weak today amid broad-based losses in global equities. Fed rate cut expectations are unchanged: swaps still reflect the risk of the Fed cutting more than 25 basis points at next week’s meeting and continue to price in 100 basis points of cuts over the remainder of the year.”
“Short-term rate differentials moved significantly in favor of the USD. The situation leaves the DXY moderately overvalued, based on 2-year forward-weighted interest rate differentials, according to my model. However, the charts suggest that there is a chance for the DXY bounce to extend a bit further after last week’s firm (technically bullish) close. In the longer term, lower US interest rates and slowing growth momentum are likely to weigh on the USD.”
“In the session so far, the USD is accumulating gains against most major currencies with the exception of the JPY and MXN. The JPY is outperforming broadly after BoJ Governor Ueda delivered a report to the government reiterating that the central bank will tighten rates further if the economy develops as anticipated. Doubts have emerged over additional BoJ tightening steps following the volatile reaction to the July rate hike.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
