Greenback edges down before presidential debate
THE US dollar edged down on Tuesday (Sep 10) before inflation data and the televised presidential debate on Wednesday, which could affect expectations for the interest rate outlook.
A mixed labour report on Friday failed to make a clear-cut case for whether the Federal Reserve would deliver a regular 25 basis point (bps) rate cut or an outsized 50 bps one at its Sept 17-18 policy meeting. Traders are now waiting on Wednesday’s US consumer price index report.
Barclays strategists noted that the greenback typically weakened ahead of Fed easing cycles and tended to overestimate rate cuts during so-called soft economic landings. Still, they said, a large part of its move had probably already happened. Investor focus will also be on the televised US presidential debate later on Wednesday that could weigh heavily on the November election.
“Should a clear winner emerge from the debate, expect the forex market to start ‘front-loading’ positions it would have taken after the election result in November,” said Chris Turner, head of forex strategy at ING.
Investors see the greenback rising in the event of a Donald Trump victory, as tariffs might prop up the currency and higher fiscal spending could boost interest rates.
The dollar index, which measures the US currency against six rivals, was at 101.62, down 0.03 per cent.
Markets are currently fully pricing in a 25 bps cut from the Fed next week, with a 50 bps cut priced in at 30 percent, down from as high as 50 per cent on Friday, the CME Fedwatch tool showed.
For 2024, traders expect 110 bps of easing, up from around 100 bps, from the remaining three meetings. Fed policymakers last week signalled they are ready to kick off a series of rate cuts, with governor Christopher Waller saying he could support back-to-back cuts, or bigger cuts, if the data suggests the need.
Meanwhile, the euro was flat at US$1.1034 after dropping nearly 0.5 per cent on Monday.
Investors were watching Europe’s political backdrop, mentioning the stalemate in France and heightened uncertainty across the EU after German regional elections.
“The resilience of the euro this year can be partly explained by the region’s current account surplus and by the market’s nonchalance regarding the budget issues faced by various EU countries such as Italy and France,” said Jane Foley, senior forex strategist at Rabobank.
“However in the second half of the year fiscal policy will be more in focus and this could affect the single currency.”