Anticipated Fed Rate Cut Sends DXY Index Near 2019 Lows
Last Friday, the Federal Reserve’s dovish stance on monetary policy sent the DXY Index down to 100.72, approaching the low point of 100.62 seen in December. DBS Senior FX Strategist Philip Wee points out that although this is a decline, it is still higher than the low of 99.58 observed in July 2023.
Fed Chair Jerome Powell made it clear at Jackson Hole that a shift in monetary policy was imminent. Rather than solely focusing on curbing inflation, Powell emphasized the need to prevent a further slowdown in the labor market and assured that the Fed had sufficient flexibility to address potential risks.
The short-term outlook for the oversold DXY hinges on upcoming US data releases, particularly the PCE deflator report on August 30. Any surprises in these data could lead to a period of consolidation for the DXY and potentially delay expectations for a significant rate cut indicated by futures market pricing. Despite this, an assessment of whether the DXY will trade below 100 over a longer time frame will be based largely on insights from key economic reports such as September’s US monthly jobs report.
In addition to an anticipated rate cut in September, revisions to the Fed’s Summary of Economic Projections are expected to carry significant weight amidst recent market developments. In June, the Federal Reserve signaled its projection for one or two rate cuts in late-2024 followed by up to 200 basis points worth of cuts throughout 2025-2026.
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