The dovish speech by Fed Chair Jerome Powell at Jackson Hole and the minutes of the FOMC Meeting in July released on Wednesday have left the greenback lower against all G10 currencies this week. This adds to the batch of weaker-than-expected activity and inflation data over the past month or so which has prompted investors to expect far more monetary easing from the Fed than they did at the beginning of July putting downward pressure on the US dollar. Next week’s PCE data out of the US and, especially, the August US non-farm payrolls report, set to be released in two weeks, will be crucial in assessing the likelihood of a 50bp interest rate cut in September and could lead to further dollar weakness. If payrolls weakened much further, however, that could reignite recession fears. Indeed, a more severe slowdown of the US economy and the upcoming US election are the main upside risks to our dollar view at this point.
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