US dollar weaker after Trump-Harris debate over US inflation data

• The US dollar fell on Wednesday after markets tagged Harris as the winner of Tuesday’s presidential debate.
• US CPI data for August is the last point the Fed needs to consider before next week’s decision.
• The US dollar index is back below 101.50 and could extend the decline if US inflation is lower than expected.

The US dollar (USD) eased on Wednesday as several news reporters commented that Vice President Kamala Harris won the presidential debate between her and former US President Donald Trump. But the victory is a very small one, not a landslide at all. Kamala Harris is now expected to gain some points in the polls, though it will still remain a close call heading into the November 5 election.

On the economic data front, the US Consumer Price Index (CPI) for August will be the focus of attention this week. Markets see this as the last data point for the US Federal Reserve (Fed) and Federal Open Market Committee (FOMC) to make an interest rate decision next week. A softer CPI release would open the door for a rate cut of 50 basis points, while a steady or stronger CPI number could limit the outcome to just a 25 basis point rate cut.

Daily Market Reasons: 25 or 50 bps rate cut?

• A CNN poll showed 63 percent of viewers saw Harris as the winner of the presidential debate, Bloomberg reported.
• At 11:00 GMT the Association of Mortgage Bankers will release its weekly number of mortgage applications for the week ending 6 September. The previous week, there was a 1.6% increase, with no forecast available.
  • At 12:30 GMT, the US Consumer Price Index (CPI) for August will be released:
  • Headline monthly CPI inflation is expected to remain steady at 0.2%.
  • Annual CPI inflation is expected to ease to 2.6% from 2.9%.
  • Core monthly CPI inflation is expected to remain at 0.2%.
  • Annual core CPI inflation is expected to remain at 3.2%.
• At 17:00 GMT, the US Treasury will allocate 10-year notes.
• Stocks are struggling, with Asian stocks already closing with losses of more than 1 percent on Wednesday. European shares are in the red, although down 0.5%. Meanwhile, U.S. futures fell 0.5 percent on average.
• The CME Fedwatch tool shows a 67.0% chance of a 25 basis point (bps) interest rate cut by the Fed on September 18, compared to a 33.0% chance of a 50 basis point cut . For the November 7 meeting, another 25bps cut (if September is a 25bps cut) is expected at 27.2%, while there is a 53.2% chance that rates will be 75bps (25 bps + 50 bps) and 19.6% probability that rates will be 100 (25 bps + 75 bps) basis points lower.
• The benchmark US 10-year yield is trading at 3.61%, a new 15-month low at levels not seen since mid-June 2023.

US Dollar Index Technical Analysis: Trading Range 2.0

The US Dollar Index (DXY) is stuck in a range between 101.90 to the upside and 100.62 to the downside since early September. Markets are still awaiting clarity from US data on whether the Fed’s rate cut next week will be 25 or 50 basis points. Expect the US CPI release on Wednesday to provide more clarity or even an answer to this question.

First resistance at 101.90 is poised for a second test after its rejection last week. Above, a steep 1.2% rally would be needed to bring the index to 103.18. The next uptrend is a very cloudy one, with the 55-day Simple Moving Average (SMA) at 103.40, followed by the 200-day SMA at 103.89, just ahead of the round high of 104.00.

On the downside, 100.62 (Dec 28 low) is holding strong and has already retraced the DXY four times in recent weeks. Should it break, the July 14, 2023 low at 99.58 will be the ultimate level to watch. Once this level breaks, early 2023 levels approach 97.73.

US Dollar Index: Daily Chart