USD Consolidates into Long Weekend – Scotiabank

An orderly end to the week looks in store ahead of the long weekend in North America. Stocks, bonds and crude oil are trading positively on the session while the US Dollar (USD) is consolidating this week’s gains and is trading narrowly mixed against the core G10 majors. The pro-risk backdrop to markets is giving a boost to high beta FX, with the ZAR and MXN leading gains on the day, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

Focus on next week’s risk events

“The USD picked up a bit more support around yesterday’s data. GDP was revised higher and the details under the hood looked positive. Weekly claims were in line with expectations and while continuing claims were also in line with forecasts, this series is holding around post-pandemic highs, suggesting workers are having some difficulty in finding jobs. Other indicators suggest a softer labour market while a Bloomberg report notes that signs of a weaker labour markets are evident in recent regional Fed surveys.”

“This could be reflected in the Fed’s Beige Book when it is released next Wednesday, ahead of the NFP data a week today. Today’s core July PCE data is expected to show prices rising at a moderate 0.2% M/M but edge up a tenth over June’s 2.6%. Optically, slightly faster core PCE growth in the year may not sit well with the idea of Fed easing but the Fed Chair’s attention is squarely on employment now and a soft jobs report next week will bolster expectations of aggressive Fed rate cuts ahead.”

“The USD looks set to close out the week with a gain—the DXY’s first in six weeks—but the rebound is not enough (yet) to signal a reversal in recent losses and short-term price signals are starting to suggest some softness may be creeping back into the DXY on the day. A further recovery in the CNY, which is trading at its highest in more than a year and appears to have broken its longer-term bear trend, may also be a block on additional USD gains.”