Weighed by renewed jumbo cut expectations – OCBC

USD fell overnight. Higher jobless claims and the WSJ article on the Fed’s rate cut dilemma have revived markets’ confidence in pricing in a jumbo cut at the September FOMC, note OCBC FX analysts Frances Cheung and Christopher Wong.

Risks are now tilted to the downside

“The probability of a 50bp September FOMC cut is 46%, up from 37% a day ago. In particular, the article featured an interview with Jon Faust. He said the volume of cuts over the next few months “will be much more significant than if the first move is 25 or 50, which I think is a close measure.” He also said the economy is in a place that requires a pre-emptive 50, but “his preference would be to start easy with 50.” He added that the Fed could manage concerns about spooking investors with a bigger cut by providing “a lot of language around it that’s not scary” and then “it wouldn’t be a sign of concern.”

“ UST yields fell along with the USD. Elsewhere in US data, initial jobless claims edged up slightly to +230,000 (vs. +227,000 previously), while the 4w moving average showed signs of a turnaround after falling in August. The DXY fell less in the open. Last at 101. Daily momentum is bullish while RSI has declined. The risks are now tilted to the downside. Support at 100.50 levels. Resistance at 101.40 (21 DMA), 101.90 and 102.20 (23.6% fibo retracement from 2023 high to 2024 low). Next day brings Michigan Uni sentiment, export/import price index data.”