The dollar has shown some softness leading up to the London fix today. Predicting its continuation is challenging due to month-end price action and market flows, making it hard to gauge market moves from the past sessions.<\/p>\n
Fed funds futures indicate ~84% probability of a 25 bps rate cut in September and ~54 bps by the year\u2019s end. This reflects the sentiment ahead of the upcoming FOMC meeting. In contrast, US stocks maintain positive momentum, with technology shares rising, even though Nvidia has declined, recovering from the lows after their earnings release late Wednesday.<\/p>\n
For the dollar, there are few drivers as the week concludes, with month-end focus taking precedence. A clearer understanding of market positioning may emerge next week. Focus will eventually shift to the upcoming US jobs report on 5 September.<\/p>\n
Barclays suggests weak dollar selling signals this month-end, while Credit Agricole anticipates mild dollar selling into the month-end fix.<\/p>\n
The US dollar is soft, but these choppy month-end flows make it difficult to trust the price action. With an 84% chance of a rate cut priced in for September, the market’s direction seems set for now. Given this backdrop, volatility is low, making it cheaper to buy options to position for a surprise in next week’s key data.<\/p>\n
All eyes are now on the US jobs report due on Friday, September 5th. We’ve seen recent data supporting a slowdown, like the latest Core PCE inflation figure for July coming in at a cool 2.6%, and forecasts for the jobs number are around a modest 175,000. A significantly weaker number could solidify rate cut expectations and hit the dollar, making bearish dollar options a compelling play.<\/p>\n
Even as the dollar softens, US stocks, particularly in the tech sector, are showing strength because bad economic news is being treated as good news for future interest rates. The VIX, a measure of market fear, has been hovering near a low of 14, which suggests complacency. This environment is favorable for strategies that collect premium, like selling out-of-the-money puts on major indices, betting that the positive momentum will continue.<\/p>\n
We saw a similar dynamic back in the summer of 2019, when the market was also pricing in Fed rate cuts amid slowing growth. The dollar was choppy before eventually weakening, while stocks rallied on the expectation of easier policy. With 54 basis points of cuts priced in by the end of this year, using longer-dated call options on equity indices could be a way to position for a similar year-end rally.<\/p>\n
Create your live VT Markets account<\/a>\u00a0and\u00a0start trading<\/a>\u00a0now. <\/b><\/p>\n","protected":false},"excerpt":{"rendered":" Dollar soft ahead of London fix; rate cut bets rise; month-end flows cloud market direction.<\/p>\n","protected":false},"author":62,"featured_media":16961,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[59],"tags":[],"class_list":["post-29845","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-live-updates"],"acf":{"acf_article_selection_author":null},"aioseo_notices":[],"aioseo_head":"\n\t\t\n\t\n\t\n\t\n\t\n\n\t\t