US Dollar: Data-dependent Fed keeps upside in check – OCBC
OCBC’s Christopher Wong and Sim Moh Siong note that softer US inflation and debate over the Fed’s reaction function have eroded US Dollar upside momentum, even as the Fed remains data dependent. Upcoming US employment data are seen as critical for policy direction.
The US Dollar experienced a temporary setback as the Federal Reserve's data dependence came into play, with OCBC's Christopher Wong and Sim Moh Siong pointing out softer inflation and debate over the Fed's reaction. Upcoming US employment data will be crucial in determining the Fed's policy direction. The Fed has maintained its focus on data, waiting for further evidence before adjusting policy despite encouraging inflation readings in June.
The market is positioning for lower oil, lower real rates, and a softer USD, with gold leading the trade. Continued US economic resilience could reignite Fed tightening concerns, bolstering the USD in the next one to two quarters.
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