US Michigan Consumer Sentiment August Preview: Rising confidence to change USD outlook

Sentiment in July is expected to be stable near pandemic low but upbeat initial unemployment claims and payrolls figures may boost confidence. Dollar remains offered close to two-year lows, however, the market may change its view on the greenback if the consumer sentiment data avoid a drop in August, FXStreet’s analyst Joseph Trevisani briefs.

Key quotes

“Michigan consumer sentiment is expected to fall to 72 in July from 72.5 in June and 78.1 in May. The pandemic low was in April at 71.8. However, better than forecast payrolls in July and a 32% drop in initial jobless claims in the three weeks to August 7 may have mitigated the damage to consumer attitudes brought on by the surge in viral diagnoses.”

“Employment is the most important component of consumer confidence. The July drop in sentiment was, given the actual job and inflation numbers, quite possibly more a product of the fear of the second wave and the incessant and often misleading media coverage, than a measure of genuine economic impact. Now that the second wave seems to be receding in most states a revival in consumer confidence appears a more than modest bet.”

“The month-old sell-off in the US dollar has been prompted by the assumed negative impact of the second Covid-19 wave the American economy. If the total effect is a two-week jump in initial claims and a one month drop in consumer sentiment, markets will shortly have to find a different scenario for the USD.”