The dollar remained under pressure at the start of this week as markets remained bullish on Treasuries across the curve due to rising dovish expectations from the Federal Reserve. The fed funds futures curve currently prices in the first rate cut in June 2024. Yesterday, weak US home sales data helped solidify the dollar’s bearish momentum and now supports the narrative that higher rates high rates are having a more tangible impact on the economy.
The dollar is expected to remain very sensitive to US data, including today’s Conference Board Consumer Confidence Index, which is expected to have declined slightly. We’ll also take a look at today’s Richmond Fed Manufacturing Index. On the Federal Reserve side, there are several speakers to watch closely: Austan Goolsbee, Christopher Waller, Michelle Bowman and Michael Barr. The central bank will almost certainly keep rates unchanged in December, but the moderation of its hawkish stance in November was due to tightening financial conditions, and the recent drop in rates significantly increases the chances of a backlash. speculation about rate cuts, which may help the dollar recover.
End-of-month flows may intervene and delay the dollar’s recovery, but we still consider it too early to follow the dollar’s downtrend. There is still some resilience in the US data towards the end of the year that may support the high-yielding dollar.