The USD has been under pressure of late, mainly on the Fed refraining from tightening monetary policy. Worries regarding Asia-related downside risks to growth and muted price developments have been taken as an indication of the central bank potentially waiting until the next year before considering higher rates. This is especially true as weak commodity price developments may make a case of inflation slowing further in the months to come
However, our economists remain of the view that a lift-off should be expected for October. It must still be noted that constructive domestic conditions may compensate for external factors dampening the impact on price developments. At the same time it cannot be excluded that China-related sentiment improves.
In any case we see only limited downside risk to investors’ central bank rate expectations and that should keep the USD a buy on dips.
In terms of data next week’s focus will be on Q2 GDP and the Michigan consumer sentiment survey. Both releases are unlikely to have any material currency impact.
Considering that USD long positioning has been falling, any further position squaring related downside risk should be low. Low inflation expectations keep Fed on hold.
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