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
    philipwee@dbs.com


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