Dollar Drifts Lower as Fresh Drivers Awaited

August 22, 2023
  • U.S. yields are still rising; all eyes are on the Kansas City Fed’s Jackson Hole Symposium this week; regional Fed August surveys will continue to roll out; housing data will be of interest as mortgage rates continue to rise
  • France reported weak July retail sales; U.K. CBI reported mixed August industrial trends survey
  • China continues to lean against the weak yuan; Thailand finally has a new Prime Minister

The dollar continues to drift lower. DXY is trading modestly lower for the third straight day near 103.227 after trading last week at a new high for this move near 103.68. We still look for a test of the May 31 high near 104.699. The euro is trading flat near $1.09 but remains on track to test the July low near $1.0835. Sterling is trading higher near $1.2775 but remains on track to test the late June low near $1.2590. USD/JPY is trading lower near 145.60 but remains on track to test the 150 area. We believe the relative fundamental story continues to move in favor of the greenback. As we expected, the recent FOMC, ECB, and BOJ decisions as well as the ongoing economic data underscore the divergence theme and so further dollar gains seem likely.


U.S. yields are still rising. The 10-year yield traded near 4.36% today, breaking above the October cycle high near 4.34%. There are no major chart points until the June 2007 high near 5.32%. Elsewhere, the 30-year yield traded near 4.47% yesterday, breaking above the October cycle high near 4.42%. This sets up a test of the February 2011 high near 4.79%. The 2-year yield is lagging a bit as it traded near last week’s high of 5.02%. Break above sets up a test of the 5.12% cycle high from July 6.

All eyes are on the Kansas City Fed’s Jackson Hole Symposium this week. It begins Thursday and ends Saturday. This year’s topic is ““Structural Shifts in the Global Economy” and the full agenda is usually made available at Thursday evening. While some may be looking for any hints on policy, we do not think any decisions will be made until the actual September 19-20 FOMC meeting given the Fed’s data-dependency mode. However, we expect Chair Powell in his opening speech Friday morning to underscore the Fed’s commitment to meeting the 2% inflation target. As such, a hawkish tone should emerge from the symposium. We will be sending out Jackson Hole preview later today. Barkin, Goolsbee, and Bowman speak today.

Regional Fed August surveys will continue to roll out. Philly and Richmond Fed non-manufacturing and Richmond Fed manufacturing (-10 expected) indices will be reported today. Kansas City Fed manufacturing index will be reported Thursday and is expected at -9 vs. -11 in July, while its services index will be reported Friday.

Housing data will be of interest as mortgage rates continue to rise. July existing home sales will be reported today and are expected at -0.2% m/m vs. -3.3% in June. New home sales will be reported tomorrow and are expected at 1.0% m/m vs. -2.5% in June.


France reported weak July retail sales. Sales came in at -2.1% y/y vs. -2.0% in June. France reports August business and manufacturing confidence Thursday. In between, eurozone preliminary August PMIs will be reported tomorrow. For France, manufacturing is expected to fall a tick to 45.0, services is expected to rise four ticks to 47.5, and the composite is expected to rise half a point to 47.1 and would be the third straight month below the key 50 level.

European Central Bank tightening expectations remain subdued. WIRP suggest odds of a 25 bp hike stand near 55% September 14, rise to 75% October 26 and top out near 85% December 14. These odds will rise and fall with the data but Madame Lagarde clearly accentuated the negative at the last ECB meting and that’s what markets should focus on. What’s very interesting to us is that the ECB may stop hiking before the Fed does and we don't think the markets have priced this risk in yet. Lagarde speaks Saturday at Jackson Hole.

U.K. CBI reported mixed August industrial trends survey. Total orders came in at -15 vs. -12 expected and -9 in July, while selling prices came in at 8 vs. 18 in July. That’s a mixed bag, with weak orders offset by lower selling prices. Distributive trades survey will be reported Thursday, with retailing reported sales expected at -15 vs. -25 in July.

Bank of England tightening expectations remain elevated. WIRP suggests 15% odds of a 50 bp hike September 21, while 25 bp hikes in November and February are priced in that would see the bank rate peak near 6.0% vs. 5.75% at the start of last week and 6.5% at the start of last month. Broadbent speaks Saturday at Jackson Hole.


China continues to lean against the weak yuan. One major strategy is strong CNY fixes. Today’s was reportedly the largest gap between the fix level and market expectations since Bloomberg began the survey in 2018. The other strategy is to push up funding costs in the offshore market in an effort to squeeze out CNH shorts. Both can temporarily slow yuan weakness but cannot reverse it, not when the monetary policy divergences continue to widen. Both USD/CNY and USD/CNH should soon test the highs from last fall near 7.3275 and 7.3750, respectively.

Thailand finally has a new Prime Minister. After months of wrangling, Srettha Thavisin will lead the nation after he received support from military-appointed Senators in a vote that came just hours after former Prime Minister and Pheu Thai backer Thaksin Shinawatra returned to Thailand for the first time in 15 years, Thaksin cut a deal with the military establishment that allowed him to return and see his protégé Srettha take over. While Thaksin and his allies had been kept out of power during his years in exile, it appears that the military preferred Pheu Thai’s Srettha over Move Forward leader Pita Limjaroenrat. While the maneuvering to keep Piti out will undoubtedly sow some discontent, this is a good second best option that removes political uncertainty and brings the ever-popular Thaksin and his party back into the fold.

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