USD: Can data convert more hawks?
Pressure on the dollar has persisted as the combined effect of abating geopolitical risk and a dovish tilt by some Fed members keeps favouring short positions. Fed Chair Powell concluded his two-day Congress testimony with a broad reiteration that he remains concerned about the tariff impact on inflation, and didn’t give much away aside from strict conditionality when it comes to easing plans.
Powell continues to attract the heat of the Trump administration, and now that two members (Waller and Bowman, both appointed by Trump) are openly disagreeing with the cautious/hawkish stance, markets may well be quick to respond with a dovish re-rating of expectations to soft US data. At the same time, media reports that Trump is considering an early appointment for the next Fed chairman are further bolstering dovish bets.
Today, aside from any further revision in the third release of first-quarter GDP data, focus will be on May’s durable goods orders as well as weekly initial jobless claims. News on the jobs market has significant impact potential now that inflation figures for May have failed to trigger a dovish response by Powell, even though the Fed-preferred PCE is only published tomorrow. The rationale could be that if something moves on the second part of the mandate (full employment), a few more FOMC members could join the dovish ranks despite inflation concerns. Markets are pricing in a one-in-four chance of a cut on 30 July, and 62bp of easing by year-end.
Fedspeak can also be quite impactful: today, we’ll hear from Goolsbee (voter, dove), Barkin and Daly (non-voters, hawkish-leaning), as well as Hammack (non-voter, hawk). Downside risks for the dollar persist, but another 1-2% plunge in DXY will look stretched without any dovish repricing in Fed expectations or tariff/deficit concerns resurfacing.
