USD Retreats as Easing Rate Hike Bets Take Center Stage
The US Dollar retreated on Friday as easing Federal Reserve rate hike bets took center stage. The USD Index lost more than 0.5% during American trading hours on Thursday after Federal Reserve Governor Christopher Waller's cautious comments.
Waller signaled a finely balanced, data-dependent reaction function that keeps upside rate risk alive. He emphasized his inclination to support holding the policy rate steady in September if August inflation shows continued progress but would consider a hike if the data come in hot.
The CME FedWatch Tool showed the probability of a 25 basis points rate hike at the upcoming meeting declined to 50% from about 63% earlier in the week. Nonfarm Payrolls, Unemployment Rate, and wage inflation figures will be closely watched by market participants later in the American session.
A strong US jobs report is unlikely to tip the balance toward a September move from the Fed, according to TD Securities. The bank estimates that 'a +40-50k upward payrolls surprise to consensus median as we expect, historical sensitivity and current positioning would suggest +0.2% knee-jerk USD reaction on the day.'