There is little to argue for a stronger USD near-term - Commerzbank

At the end of next week, the central bank elites will convene for their annual meeting in Jackson Hole, Wyoming. Esther Reichelt, analyst at Commerzbank notes without tailwinds from the Fed, there is little to argue for a stronger US dollar near-term; the dollar will only be able to appreciate significantly once a more aggressive rate path from the Fed becomes more credible.

Key quotes

“Even solid data failed to support the US dollar recently. The greenback has been weakening since the release of disappointing Q2 growth data. Fears about the growth outlook even overshadowed the outstanding labour market report in early August.”

“The currency market has now adjusted to the view that the Fed will hike rates only if each and everything is falling into place – and unless this is the case, the dollar will be unable to strengthen. Consequently, real economic data and the revision of Q2 GDP, in particular, will be interesting next week. But even solid data will only be able to decide, if at all, whether a rate move as soon as this year will become more likely, and will provide little support to the US dollar. However, the main drag for the greenback is the market’s expectation that the Fed will generally hike rates very slowly, with the long-term rate outlook remaining weak as a result.” 

“The Fed could counter this at the annual meeting of monetary policy-makers in Jackson Hole next week. However, the minutes of its July meeting illustrated once again that the Fed remains uncertain as to the exact state of the economy. And Fed Chair Janet Yellen, in particular, has been very cautious so far and will certainly not want to push ahead too far with regard to the future. Without tailwinds from the Fed, there is little to argue for a stronger US dollar near-term, which is why we have slightly raised our EUR/USD forecast for September. The dollar will only be able to appreciate significantly once a more aggressive rate path from the Fed becomes more credible.”