DXY: Summary and Expectations

 
 
 
 
 
 
 

The ambiguous macro statistics coming from the US continues to rock the market. According to the monthly report of the US Department of Labor, published last week, in July the number of new jobs in the non-farm sector of the US economy increased by 528,000, while the unemployment rate fell to 3.5%. The forecast assumed a decrease in the rate of creation of new jobs (outside the agricultural sector), to 250,000 from 372,000 in June, although the unemployment rate was expected at the same level of 3.6%.

Strong data improved dollar buying sentiment and heightened expectations of further interest rate hikes this year by the Fed.

Data on the US labor market came out after the publication of disappointing data on the country's GDP for the 2nd quarter a week earlier and slightly smoothed out the negative impact on the dollar of the negative value of GDP.

On strong data from the labor market, the dollar strengthened, and the DXY dollar index again exceeded 106.00, reaching a local intra-week high of 106.81.

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However, the latest data on inflation in the US, published last Wednesday, puzzled the market participants again.

As follows from the report presented by the Bureau of Labor Statistics, the consumer price index (CPI) came out in July with a value of 8.5% (on an annualized basis), which was lower than the forecast of 8.7% and the previous value of 9.1%. Core CPI (excluding food and energy prices) remained unchanged at 5.9%, which was also below the forecast of growth to 6.1%. Weaker inflation data significantly dampened expectations for a larger Fed rate hike, putting pressure on the dollar.

At the same time, the annual producer price index (PPI) in the US in July fell more than expected, to 9.8% from 11.3% in June, which was also below market expectations of 10.4%. Thursday's data also showed that the number of initial jobless claims last week (through Aug.6) was 262,000 against the previous (weekly) values ​​of 248,000, 254,000, 261,000, 244,000, 235,000, 231,000, 232,000, 202,000, 211,000. As you can see, the number of applications, and hence the unemployed, is growing, which indicates a gradual deterioration in the situation on the American labor market, and which slightly contradicts the positive monthly report published last Friday US Department of Labor. Other details of yesterday's weekly report of the Ministry of Labor also turned out to be worse than market expectations.

Now, the likelihood of a 75bp Fed rate hike fell to 35% in September from 80% (before the publication of the CPI index), according to the CME Group.

At the same time, the mood of dollar buyers is supported by the statements of representatives of the Fed's leadership about the possibility of continuing the super-hard cycle of raising the interest rate.

For example, San Francisco Federal Reserve Bank President Mary Daly said on Thursday that a 50 basis points rate hike in September "makes sense" given the latest economic data, including inflation. In a media interview, she highlighted the possibility of a 75 basis points rate hike at the Fed meeting in September if macro data so requires.

In today's news, attention should be paid to the publication at 14:00 (GMT) of the preliminary index of consumer confidence of the University of Michigan, which is a leading indicator of consumer spending, which accounts for the majority of overall economic activity. It also reflects the confidence of American consumers in the economic development of the country.

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In case of a breakdown of the local resistance level 106.00, which will be the first signal of the resumption of the positive dynamics of the dollar, its DXY index will head towards recent highs near 109.00 with intermediate targets at 107.00, 108.00.