USD fell overnight. Higher jobless claims and the WSJ article on Fed's rate cut dilemma revived markets' confidence to price in a jumbo cut at Sep FOMC, OCBC’s FX analysts Frances Cheung and Christopher Wong note.
“Probability of 50bp cut for Sep FOMC is at 46% vs. 37% probability a day ago. In particular, the article carried an interview with Jon Faust. He said that the amount of cuts over the next few months ‘is going to be a lot more important than whether the first move is 25 or 50, which I think is a close call’. He also said that the economy is in a spot that calls for a pre-emptive 50 but his ‘preference would be slightly starting with 50’. He added that Fed could manage concerns about spooking investors with a larger cut by providing ‘a lot of language around it that make it not scary’ and then ‘it wouldn’t be a sign of worry’.”
“UST yields fell, alongside USD. Elsewhere on US data, initial jobless claims inched up slightly to +230k (vs. +227k prior) while 4w moving average shows signs of turning after declining in Aug. DXY gapped lower in the open. Last at 101. Daily momentum is bullish while RSI fell. Risks now skewed to the downside. Support at 100.50 levels. Resistance at 101.40 (21 DMA), 101.90 and 102.20 (23.6% fibo retracement of 2023 high to 2024 low). Day ahead brings Uni of Michigan sentiment, export/import price index data.”
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