Dollar faces 'short-term risks' to the downside despite strong US data

Matthew Ryan, CFA Ebury

The little US data released last week confirmed a strong economy with building inflation pressures. The flash composite PMI for October eased slightly, but remains close to a five-year high. More worrying for the Fed, selling prices rose at the fastest rate since 2022.

The dollar, however, was largely driven by developments in equity markets, with an interesting pattern emerging: a contained wobble in AI-related stocks leaves the dollar vulnerable, whereas the greenback retains its standing as among the world’s most favoured safe havens currencies during broader equity sell-offs.

We maintain our call for a hold from the Fed on Wednesday. We expect the focus to be on dissents and on guidance for December, where a hike remains a live option as well as our prediction. Thursday’s GDP and PCE data should confirm that the economy is running hot.

However, the dollar no longer rallies easily on good US news, and we see short-term risks to the greenback as tilted to the downside.

Author

Matthew Ryan, CFA

Ebury

Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.

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