A soft start to September for the dollar

Following a solid end to August, the beginning of September has brought with it a reversal of fortunes for the dollar, despite domestic data broadly exceeding expectations. Indeed, in the main data release of the past week, nonfarm payrolls rose by 162k, overshooting all economist estimates. And yet, the DXY index finished up the week trading around the 99 mark after USDJPY carry trade unwinds weighed notably on wider dollar performance. Interestingly, the dynamic seems to have been sparked by a surprise outbreak of BoJ hawkishness. Whether or not such rhetoric persists will now be closely watched as the September round of central bank decisions approaches.

The week ahead sees one such G10 announcement, with the ECB set to hike rates. After Lagarde dropped some unusually strong hints in July, data since has all but confirmed the decision. The NBP is due to meet too, albeit we expect no change in the policy stance. CPI readings across Scandinavia will help inform upcoming rate decisions, but nowhere is an inflation release as likely to attract as much scrutiny as in the US, with August CPI due to drop Friday. This one data print, we think, could swing the balance of evidence for or against a Fed rate increase on September 16th, and as such, should invite plenty of greenback volatility to close out the end of the coming week. We lean toward a softer dollar again, but with admittedly low conviction.

You can read the Week Ahead in full here:

Authors:

Nick Rees, Head of Macro Research

Barry van der Laan, Senior FX Market Strategist

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