More settled equities can see the dollar soften a little – ING

Yesterday’s slightly higher-than-expected core US CPI for August saw 7bp priced out of the expected 2024 Fed easing cycle. Yet 100bp is still priced in. We doubt those expectations change meaningfully today. In focus will be the August PPI readings and the weekly initial claims data, ING’s FX strategist Chris Turner notes.

101.90/102.00 resistance should hold in DXY

“This year, PPI readings have taken on greater focus as the market analyses key components such as portfolio management fees, healthcare costs and airfares which read through to the Fed’s preferred measure of inflation, the core PCE deflator. However, now that the Fed has declared ‘the time has come’ to start cutting rates, financial markets will be far less worried by the inflation data prints and have shifted their focus squarely on activity data – particularly jobs data. Here the holiday-shortened week probably means that initial claims data today will remain low near 225,000. In short, not a lot new from the US calendar.”

“The reason we have a down arrow on the dollar today is that the risk environment looks slightly better bid today and we are looking for a slightly stronger euro – which has a large weight in the DXY. Overnight, tech stocks (particularly Nvidia) saw the S&P 500 end up 1% and have sparked some decent rallies across Asia. There is also a small risk that Chinese leaders announce some fiscal support measures – potentially targeted at consumers – at this week’s National People’s Congress.”

“A budget tweak was made at the same meeting this time last year. Any moves to address weak Chinese demand would be most welcome and break the stagnation fears stalking markets (especially energy markets) this week. If we are right with our EUR/USD call below, c and we can end the day closer to 101.00.”