USD mixed, focus on ECB – Scotiabank

The USD is mixed to slightly weaker in subdued FX trading this morning. Firmer stocks, slightly weaker bonds and some gains in key commodities (crude oil, copper, iron ore) are fairly orderly as investors await this morning’s developments, notes Shaun Osborne, Chief FX Strategist at Scotiabank.

USD trades mixed against major pairs

“The ECB policy decision and the next round of US economic data are due today. The US releases weekly PPI and claims at 8.30ET. PPI is expected to rise 0.1% in August, with core PPI up 0.2%. The dovish data may not have much of an impact on trading, but, after the market reaction to yesterday’s slightly higher M/M core CPI reading, minor data surprises clearly have the ability to roil markets that are eager for clarity, one way or another, on the Fed’s near-term policy outlook.”

“The small deviation in CPI further dampened market expectations for an aggressive Fed rate cut next week. Underlying inflation pressures are moderating and the Fed’s attention is more focused on employment now. The July FOMC minutes showed that ‘several’ policymakers thought progress in inflation and deterioration in the labor market provided a ‘plausible case’ for a 25 basis point cut and that they might have supported such a cut decision at the time. Labor market conditions are, net of revisions, even weaker now, so there may still be a case to be made for a bold move next week, even if a more measured outcome seems most likely.”

“Despite yesterday’s upside momentum in the DXY, the Dollar Index is showing some signs of stalling near the previous September peak just below 102 (retracement resistance at 101.85). A clear push above the 102 area will indicate potential for additional DXY gains (1-1.5%) in the coming weeks. Remember that seasonal trends typically suggest the USD will remain weak until later in Q4.”