Dollar Momentum Stretched by Downward Data Surprises

The US dollar's momentum indicators are facing downward data surprises, stretching its momentum. The Fed funds futures finished last week with less than eight basis points of tightening next month discounted, down from 18 bp at the end of July.

The dollar appears to be highly sensitive to changes in short-term interest rates, as indicated by a correlation of changes in the Dollar Index and the US two-year yield near 0.60, its highest in nearly two months.

In July, assessments of the current situation remained somber at -77.6, a three-month high but still weaker than the Q2 average.