USD supports start to build heading into Autumn
With last night’s UK Parliamentary vote precluding UK involvement in Syria, developments on the geopolitical front and better than expected US economic data are likely to lend support to the USD. The dollar is stronger across the board, benefiting in part from yesterday Q2 GDP report which saw a sizeable upward revision to 2.5% q/q annualized. US data over the coming days and weeks will be viewed in the context of the September 18 FOMC announcement, with next Friday’s August nonfarm payrolls report likely being the key focus. Today a 0.3% m/m gain in July personal spending should support USD although significant directional FX moves are unlikely in our view given the long US holiday weekend. FX markets today are also likely to be driven by month-end flows. We remain positive but patient on the USD over the medium-term awaiting further US data and the resolution of Syrian uncertainty which still poses a downside risk for the USD given its negative sensitivity to oil prices. A ‘wild card’ source of support for the dollar could be the leadership transition at the Fed. Our US economists see the odds as tilting in favour of Larry Summers being nominated as Fed Chair – an outcome that is likely to put upward pressure on US rates and the USD (for details see the latest US Desknote “The cost of FOMC regime change”).
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BNP Paribas