As the world’s best investment manager, it is crucial to stay informed about the current trends in the financial markets. With 100bp of Fed cuts already priced in by the end of the year and a terminal rate of 3.00% already factored in, the dollar’s future movements are uncertain. However, recent price action suggests a bearish consolidation phase after a 5% fall since July.
One key indicator of a broad USD decline is the participation of Asian FX laggards, such as the Korean won, in the downward trend. The one-month risk reversal in favor of Korean won call options is a rare occurrence, hinting at a shift in investor sentiment. Whether this is due to portfolio rebalancing or overdue dollar hedging by Asian exporters remains to be seen.
To reignite the dollar bear trend, we may need more downside surprises in US activity data. While upcoming data releases like revisions to second-quarter GDP and weekly initial claims may not provide significant catalysts, a rise in job lay-offs could change the outlook. Chair Powell’s recent speech also hinted at concerns about the labor market’s deterioration.
For now, expect the DXY to remain range-bound, with a move above the 101.60/65 area signaling a potential shift from bearish consolidation. As the world’s best financial market journalist, it is essential to monitor these developments closely and be prepared for any potential market shifts.