USD strengthens over long weekend – Scotiabank

A tidy end to the week is expected ahead of the North American long weekend. Stocks, bonds and crude oil are trading positive this session, while the US dollar (USD) consolidates this week’s gains and trades in a tight mix against the G10 majors. The markets’ pro-risk backdrop is giving high-beta currency a boost, with ZAR and MXN leading gains on the day, notes Shaun Osborne, chief FX strategist at Scotiabank.

Focus on next week’s risk events

“The USD got a bit more support around yesterday’s data. GDP was revised higher and under-the-hood details looked positive. Weekly claims were in line with expectations, and while ongoing claims were also in line with forecasts, this series is hovering around a post-pandemic high, suggesting workers are having some trouble finding jobs . Other indicators suggest a weaker labor market, while a Bloomberg report notes that signs of a weaker labor market are evident in recent regional Fed surveys.

“This could be reflected in the Fed’s Beige Book when it is released next Wednesday ahead of today’s NFP data. Core PCE data for July is expected to show prices rising at a moderate 0.2% M/M, but up a tenth from June’s 2.6%. Optically, slightly faster core PCE growth on the year may not match the Fed’s easing idea, but the Fed chairman’s focus is squarely on employment, and a jobs report weak next week will increase expectations of aggressive Fed rate cuts going forward.”

“The USD looks set to close the week with a gain – the first DXY in six weeks – but the rebound is not enough (yet) to signal a reversal of recent losses, and near-term price signals are starting to suggest some weakness. to creep back into DXY that day. A further rally in the CNY, which is trading at its highest level in more than a year and appears to have broken its long-term bearish trend, could also be a block to further USD gains.