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US DOLLAR WEEKLY FUNDAMENTAL OUTLOOK – BEARISH

  • The US Dollar swooned over the last 5 trading sessions as Fed rate cut bets rise in response to heightened US-China trade war uncertainty
  • US Dollar selling pressure could accelerate if high-impact economic data like CPI, retail sales and consumer sentiment readings disappoint
  • Check out our Q3 USD Forecast for longer-term outlook with comprehensive fundamental and technical analysis[1]

The US Dollar dropped sharply this past week with the DXY[2] Index sinking roughly 1%. USD[3] weakness was primarily driven by the market pricing in greater probabilities that the Federal Reserve will cut rates again at the next FOMC meeting following a turn for the worse in the US-China trade war with Trump’s threat of hiking tariffs further. Even though Chair Powell talked down the July Fed rate cut as a “mid-cycle adjustment” in the follow-up press conference, the FOMC[6] statement noted that the central bank “will act as appropriate to sustain the expansion.” [4][5]

FED RATE CUT BETS REMAIN ELEVATED ALONGSIDE US-CHINA TRADE WAR UNCERTAINTY

Fed Rate Cut Probability Chart

That said, the market’s priced expectation for the Fed to loosen monetary policy once more will largely be driven by US-China trade war developments in the coming days. For a possible barometer, currency traders could watch USDCNH to gauge US-China trade war escalation which would likely drag down the greenback more broadly relative to the Euro[8], or anti-risk currencies like the Japanese Yen[10] and Swiss Franc[11]. Additionally, the release of closely watched economic indicators next week have potential to spark a reaction in Fed rate cut bets and drive the direction of the US Dollar as well.[7]

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