May return below 99.58 in short term – DBS

Fed expectations pushed the DXY index down to 100.72 last Friday, close to the December low of 100.62 but still above the July 2023 low of 99.58, notes Philip Wee, senior FX strategist at DBS.

Still above July 2023 low of 99.58

“Fed Chairman Jerome Powell announced in Jackson Hole that the time has come to adjust monetary policy. Powell was unclear on the Fed’s shift from pulling inflation down from the peak to preventing further cooling in the labor market, adding that the Fed has plenty of room to respond to any risks here.

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

“Aside from the September telegraph rate cut, 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 cuts in 2025-26.”