The current strength of the USD is largely based on the recent strong NFP report from the US job market. These data have significantly dispelled fears of a recession in the US and concurrently reduced to zero expectations of a 50 basis points rate cut by the Fed in November or December. The market does not currently even anticipate two full cuts of 25 basis points in the remaining meetings this year. Given other economic data from recent weeks, the market does not have many reasons to adjust its expectations regarding the future path of US monetary policy. It is now sufficiently strong to assume that the Fed will make decidedly more “dovish” decisions. Of course, if macro figures at some point begin to paint a somewhat different picture of the US economy, the attitude of investors could change dramatically.
It is worth remembering how significantly the US dollar lost value at the beginning of August, when job market data greatly disappointed. The only problem is that there are no important publications coming up for some time. The key events seem to be the NFP report, the US presidential elections and the next Fed meeting. We’ll get the job market data before the political event, while the Federal Reserve’s decision will be announced after Americans place their vote. It is likely that the strong increase in jobs at the beginning of October will be revised down, as has been the case in recent months.
As for the US elections, chances of Donald Trump have been on the rise lately. His economic proposals could potentially trigger a strong rise in the USD, which could overshadow the job market and the decision on interest rates.
The emergence of a clear euro strength in the near term is quite doubtful. Lagarde’s recent press conference has increased the likelihood that the ECB will “ease” more than previously expected this year. The real economy of the eurozone is slowing significantly. Much weight will be attached to the preliminary PMI readings for October this Thursday.
Author: Łukasz Zembik, Oanda TMS Brokers
Source: https://ceo.com.pl/rajd-dolara-napedzany-mocnym-raportem-nfp-i-oczekiwaniami-rynku-93014
