USD whips on data but wilts on Trump - DBS

The DXY Index climbed 0.7% to 98.4 overnight, primarily on profit-taking sparked by better-than-expected US new home sales (NHS). Earlier, the index consolidated in a narrow 97.8-98.0 range throughout the Asian and European sessions, digesting last Friday's 0.9% sell-off to 97.7 following Fed Chair Jerome Powell's signal for a September rate cut. We caution against reading too much into July's NHS surprise. On a 12-month rolling sum basis, sales contracted for a fifth consecutive month, highlighting weak underlying demand underscored by mounting inventories, DBS' FX analyst Philip Wee reports.

US data drives volatility, Trump pressures Fed

"Dallas Fed President Lorie Logan flagged potential money market strains at the end of 3Q25, another reason keeping the September rate cut in play. However, Logan noted that the Fed had the tools to manage the temporary stress. Logan hinted that the easing may extend beyond September by urging investors to look beyond the dot plot toward the diversity of views in next month's Summary of Economic Projections. Attention will likely turn to the Fed's median estimate of the neutral rate, which increased in June to 3% from a pre-pandemic 2.5%, still below the current 4.25-4.50% Fed Funds Rate."

"Given the market's sensitivity to incoming US data, the DXY could easily flip lower on disappointing US consumer sentiment today. Consensus expects the US Conference Board's consumer confidence index to ease slightly to 96.5 in August from 97.2 in July, which does not align with the shockingly weak nonfarm payrolls. August payrolls are expected to stay below 100k for a fourth straight month next week. As noted in the previous report, tariffs should remain a top concern for consumers, driving prices higher. However, this Friday's PCE release is expected to slow headline inflation slowing to 0.2% MoM in July from 0.3% in June, while core holds steady at 0.3%."

"All said, one thing has not changed our negative view on the USD. The DXY fell 0.2% this morning on US President Donald Trump's announcement to remove Fed Governor Lisa Cook, underscoring his determination to reshape the board and keep Powell's feet to the fire in delivering rate cuts."