A week of decidedly mixed economic data has seen the tone shift towards risk-off across financial markets, with safe haven currencies on the front foot and the US dollar staging a bit of a recovery in the wake of today’s weak, but not disastrous, US non-farm payrolls. On balance, we think that report, and the wider set of US data released this week, point to an economy that is slowing but not falling off a cliff. As such, we continue to think that the FOMC will opt for a 25bp cut at its mid-September policy meeting, rather than a more dramatic 50bp cut, and that the sharp fall in US interest rate expectations and Treasury yields over recent weeks is now somewhat overdone. Consequently, we expect the greenback to stabilise after its sharp drop over the past two months.
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