USD Strength Continues: US Data and FOMC Minutes Provide Support for the Dollar
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FX Daily: More volunteers to support the US dollar
Data confirms the strength of the US economy and today's industrial production and FOMC minutes can only add fuel to the fire. The US dollar is the clear winner here and we are hardly looking for firepower in the eurozone to defend the euro. In the CEE region, Poland returns from holidays and the Czech koruna is the only one able to resist negative global factors.\
USD: FOMC minutes and a strong economy should offer further support
Another nudge coming from the positive surprise in US retail sales did not last long and the US two-year yield slipped back down after touching the 5% level. This kept the US dollar index near 103.00, however, another hawkish test may come again today. Industrial production, after a 0.5% month-on-month drop in June, should show a return to 0.3% MoM growth in July in our view, in line with market expectations. Retail sales already indicate 3% GDP growth in the third quarter in our view and estimates for industrial production are also supportive of another positive surprise, confirming the strength of the US economy, which would be more positive news for the US dollar, of course.
Later today, the July Federal Reserve minutes will come into play, which should reflect the FOMC's hawkish efforts to combat dovish expectations. This should be the last big event from the Fed until next week's Jackson Hole symposium. For now, this strategy is working perfectly. The implied policy rate has moved up roughly 50-60bp over almost the entire curve in the last month alone, with the exception of the super-short horizon. However, it is just a matter of time before the Fed uses up its ammunition and the market stops buying more hawkish news. For now though, we remain in this mode for at least the next few days, which combined with the positive surprises from the economy, should continue to support the US dollar.
Thus, DXY should remain above 103.00 and test higher levels closer to 103.50 today as well.
