FX Daily: Fed lifts the USD

Many currencies fell past key support levels
Philip Wee23 Sep 2021
    Photo credit: Unsplash Photo

    DXY initially brushed aside the hawkish FOMC statement and fell to 93.0 but it rebounded to 93.5 during Fed Chair Jerome Powell’s press conference. To cut a long story short, Mr Powell affirmed that the Fed is very close to meeting its “substantial further progress” towards its dual mandate and could announce a decision to start tapering asset purchases at the next FOMC meeting on 3 November. If so, the Fed could fully withdraw its pandemic stimulus by mid-2022 and possibly bring forward its rate hikes in late 2022. According to the Fed’s Summary of Economic Projections, the Fed Funds Rate would increase from 0.10% to 0.30% in 2022 before rising to 1.00% in 2023 and 1.80% in 2024. 

    Two events will be important before the FOMC meeting in November.

    First, there must not be another big miss in US nonfarm payrolls scheduled for release on 8 October. Consensus expects NFP to increase to 513k in September after the fall to 235k (vs 735k expected) in August. In this regard, another increase in the initial jobless claims today will not be welcome. Claims are expected to fall to 320k for the 12 September week after an unexpected rise to 332k from 312k the previous week. The unemployment rate is expected to drop to 5.0% in September from 5.2%, in line with the Fed’s projection of 4.8% by end-2021.

    Second, Congress must approve a bill to suspend the federal debt limit. On Wednesday, House Democrats pushed through a bill (220-211 vote) to fund the US government through 3 December and suspend the borrowing limit until end-2022. Republicans vowed to block the bill in the Senate. The Treasury Department warned that the stopgap bill must be passed by 30 September to keep US government offices open in the new fiscal year that starts on 1 October.

    Until negative surprises emerge on these fronts, the USD is likely to follow through with more appreciation. NZD fell below 0.70 again despite expectations for a rate hike by the Reserve Bank of New Zealand at its next meeting on 6 October. During its meeting today, the Bank of England is likely to affirm that the minimum conditions for a rate hike had been met. Don’t expect this to protect the GBP from the EUR’s slide below 1.17. Failure to hold the 1.36 support could send GBP to the year’s low of 1.3450 in January. The two strongest Developed Market currencies – CAD and GBP – have finally turned negative for the year. To sum up, ECB President Christine Lagarde was correct about the Fed being ahead in rolling back its pandemic measures. In Emerging Asia, THB and PHP have respectively depreciated above 33 and 50 per USD again. MYR might join in pushing above 4.20 per USD too.

    Philip Wee

    Senior FX Strategist - G3 & Asia

    Subscribe here to receive our economics & macro strategy materials.
    To unsubscribe, please click here.
    The information herein is published by DBS Bank Ltd. It is based on information obtained from sources believed to be reliable, but the Group does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation & the particular needs of any specific addressee. The information herein is published for the information of addressees only & is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Group, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Group or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Group & its associates, their directors, officers and/or employees may have positions or other interests in, & may effect transactions in securities mentioned herein & may also perform or seek to perform broking, investment banking & other banking or finan­cial services for these companies. The information herein is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Sources for all charts & tables are CEIC & Bloomberg unless otherwise specified.

    DBS Bank Ltd., 12 Marina Blvd, Marina Bay Financial Center Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E. DBS Bank Ltd., Hong Kong SAR Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.

    The information set out in this website ("Information") is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. This Information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation. This Information is published for general circulation only and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. Visitors accessing this website should always seek advice from an independent financial adviser regarding the suitability of the Information referred to herein (taking into account the specific investment objectives, financial situation and/or particular needs of each person in receipt of the Information) before making any investment and/or any purchase in reliance of the Information. Please refer to the actual research publications for important disclaimers and disclosures, where applicable.