FUNDAMENTAL OVERVIEW USD: The US dollar strengthened across the board yesterday after the US PCE data.
The reaction was honestly odd because literally nothing has changed
The Core figures were in line with forecasts and the market pricing held steady, with 35% chance of a rate hike in September. Therefore, I would dismiss it as just noise. Looking ahead, the key events will be Fed Chair Warsh’s speech at the Jackson Hole Symposium tomorrow, a potential US-Iran deal in the coming days and the US CPI report on September 11.
After the Treasury buyback announcement and Bessent’s “verbal” intervention to suppress long-term yields, traders will be eager to see whether Fed Chair Warsh leans against the easing in financial conditions. If he doesn’t, the US dollar will likely come under renewed pressure from further easing in financial conditions and the dovish repricing in near-term interest rate expectations. On the other hand, if he pushes back saying things like “recent easing in financial conditions, if sustained, could complicate the process of returning inflation to our target” or “if recent easing threatens progress toward price stability, we will not hesitate to respond appropriately” and so on, the market may interpret it as a signal for a potentially hawkish September FOMC and give the greenback a boost.