May pullback below 99.58 short term – DBS

Fed cut expectations sent the DXY Index to 100.72 last Friday, near December’s 100.62 low, but was still above the 99.58 low in July 2023, DBS Senior FX Strategist Philip Wee notes.

Still above the 99.58 low in July 2023

“Fed Chair Jerome Powell announced at Jackson Hole that the time has come to adjust monetary policy. Powell was crystal about the Fed’s shift from pulling down inflation from its peak towards preventing a further cooling in the labour market, adding that the Fed had ample room to respond to any risks here.” 

“In the short term, the oversold DXY could consolidate on surprises in this week’s US data, especially the PCE deflator on August 30, pushing back the futures market’s bet for a 50 bps cut. However, we will assess the DXY’s prospects to trade below 100 over the medium term. The US monthly jobs report on September 6 will be critical.” 

“Apart from the telegraphed rate cut in September, the Fed’s revisions to the Summary of Economic Projections will be significant. In June, the Fed projected 1-2 rate cuts in 2H24, followed by 200 bps of cuts over 2025-2026.”