US Dollar: Positioning-driven softness ahead of CPI – BNY
BNY’s Wee Khoon Chong notes that the US Dollar (USD) has been the weakest G10 currency on iFlow metrics as markets scale back expectations for a September Fed hike.
The US Dollar (USD) has been experiencing a softening trend ahead of the Consumer Price Index (CPI) announcement, according to BNY's Wee Khoon Chong. Markets are scaling back expectations for a September Federal Reserve (Fed) interest rate hike, which has contributed to the weakness in the USD. The employment data and reduced tightening odds have added to the pressure on the USD, while an asymmetric setup around the upcoming CPI could lead to either a sharp rebound or reinforce the current bearish positioning.
The USD has been the weakest among the G10 currencies in terms of iFlow metrics and flow scoring over the past week. The reduced expectations of Fed tightening are expected to continue weighing on the dollar. For USD, a strong CPI print, particularly in core services or shelter, could reverse the recent price decline and result in a sharp increase in demand.
Conversely, a soft or in-line CPI print would reinforce the current bearish positioning, keeping the USD's scored holdings low and encouraging continued outflows.
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