Investors’ focus is shifting back to monetary policy expectations as a market driver.
In the US the latest data such as business inventories remain constructive enough in order to enable the Fed to tighten monetary policy this year. Even if September has become more unlikely, a lift-off ahead of the end of the year seems likely regardless of China-related tensions. This is especially true as inflation expectations as measured by breakeven rates may stabilize should domestic demand conditions improve.
Ahead today, the main focus will be on the Q2 GDP release, which should confirm growth at 3.2%, fully in line with expectations. As a result to the above outlined conditions we remain of the view that USD downside will stay limited.
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