USD slides as focus returns to rates, spreads - Scotiabank

The US Dollar (USD) is weaker overall this morning and it is perhaps no great surprise, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD weaker as investors focus on Fed, rates, data challenges

"Yesterday's US CPI report was mixed but markets tended to focus on the downside miss to the headline data rather than the upside miss on the core report to knock the USD lower, at least initially. USD selling pressure had abated until President Trump repeated his criticism of Fed Chair Powell and suggested that he might allow a 'lawsuit' against Powell to proceed. That was quickly followed reports that the president's pick to as stopgap Fed governor, Miran, remarked that inflation was 'well behaved' while Antoni, his choice to run the BLS, suggested ditching monthly data for less timely but 'more accurate' jobs updates."

"Late in the day, Treasury Sec. Bessent suggested the Fed should consider a 50bps rate cut in September after an 'incredible' inflation report. These developments left the USD weaker on the session, with investors forced to ponder implications for Fed independence, US data integrity and whether, even with inflation sticky around 3% still, the Fed might proceed with a (perhaps aggressive?) rate cut in September anyway. Barkin (non-voter, hawk), Bostic (non-voter, neutral) and Goolsbee (voter, dove) speak today."

"The DXY sell-off yesterday should reinforce resistance on the short-term chart around 98.70/80. Loss of support at 97.70 (under pressure this morning), the base of the July/August consolidation in the index, will suggest broader USD losses are resuming and target a return to the recent low (at least) at 96.37 as markets focus more intently on Fed rate policy and rate differentials again."