Written by FX & Macro Strategist – APAC
Global overview
The USD’s ongoing surge higher took a pause overnight after weaker GDP and poor housing data. Bond yields also reversed falling from 16-year highs. The Aussie was the largest beneficiary. Tonight, US PCE inflation is due – key for the Fed’s next move.
Greenback’s record run to be tested
The US dollar turned from recent highs overnight after a weaker than expected GDP reading – and more bad news from existing home sales – hit sentiment towards the US economy.
US second-quarter GDP was reported at 2.1% – only just below forecasts for 2.2% – but most of the miss was due to a weaker consumer. A steep drop in pending home sales – down 7.1% – also signaled potential weakness from the US consumer.
The news produced a sharp reversal in bond yields which had recently reached 16-year highs.
The turn in bond yields also hit the greenback with the USD index dropping from 10-month highs. The USD remains on track to extend its ten-week winning streak but further losses might test the FX market’s resolve.
Aussie outperforms
The weaker USD saw a big jump in regional currencies.
The AUD/USD jumped from 10-month lows to gain 1.1%.
The NZD/USD gained 0.7%.
In Europe, the GBP/USD rebounded from six-month lows while the EUR/USD bounced from one-year lows.
In Asia, the USD/SGD fell 0.4% while the USD/CNY lost 0.1%.
In today’s trade, markets will be watching the USD/JPY. The overnight sharp reversal just below 150 aligns from the more than 30-year top seen last year – further losses from this level could weigh on the USD in the short term.
US PCE inflation due
US personal consumption and expenditure (PCE) inflation looks likely to remain modest in August, rising by just 0.2% month-over-month. In August, y-o-y core PCE inflation will reduce to 3.8%, the lowest level since June 2021. Airfares and health care services, as well as secondhand cars, are either not taken into account or are given less weight in PCE estimations.
The August PPI’s key PCE components, which include prices for health care services and portfolio management, as well as flight fares, were all negative on a net basis. We expect Powell’s preferred inflation gauge, the supercore PCE inflation, which excludes core goods and housing services, to slow to 0.2% m-o-m in August from 0.5% in July.
That said, we believe disinflation has begun considering encouraging signs of easing price pressures for core services and housing. The markets assign 82% probability of no rate hikes in next meeting (Source: Refinitiv).
USD produces short-term top?
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 25 – 29 September
All times AEST
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
