USD firms modestly ahead of PPI, JPY outperforms - Scotiabank

The US Dollar (USD) has firmed modestly against most major currencies in overnight trade, with the Japanese Yen (JPY) and Pound Sterling (GBP) bucking the trend. The JPY is outperforming in the wake of comments from US Treasury Sec. Bessent suggesting the BoJ was behind the curve in tackling inflation, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD slightly firmer ahead of PPI

"Sterling's recent gains were underpinned by better-than-expected UK data. The dollar is modestly better bid ahead of US PPI this morning but the data may not add to much to the USD or rate outlook. Headline and core PPI are expected to rise 0.2% in the month of July but Y/Y measures are forecast to strengthen relative to June (2.5%, from 2.3% for headline and 3.0%, from 2.6% for core)." Initial claims data could have more impact on USD sentiment if the data are weaker."

"Yesterday, President Trump and Treasury Sec. Bessent both indicated that, in their views, the Fed policy rate should already be lower and fall significantly in the coming months. Despite indications from Treasury Sec. Bessent that a 'wide net' had been cast to looking at as many as 11 people as possible replacements for Fed Chair Powell, President Trump indicated yesterday that his choice may be made fairly soon from '3-4' potential picks, which may revive concerns that a 'shadow chair' could wield more influence over the longer term policy outlook than the incumbent in the coming months."

"As it stands, markets are now fully priced for a 25bps cut in September now--a meeting Bostic described as 'live' yesterday--and have around 85% of 75bps cut priced in for Septeber-December. The Fed rate outlook is likely to weigh on the USD's outlook and curb its ability to rally in any major way for now. Japan releases Q2 GDP data while China publishes Retail Sales, IP and housing data this evening."