USD to garner momentum from yield support: we stick with long USDCHF
USD weakness remains a notable theme in G10 FX with the greenback’s move lower linked to rising expectations of a “dovish” Fed taper, even as geopolitical risk-premia have dissipated. A Reuters poll (taken just after the non-farm payrolls release) shows that most economists are now looking for a smaller Fed taper (of USD10bn) next week. Our economists flag about a 40% chance to such an outcome (their central case is for a USD 20bn taper in December), but point out that there is a risk that the Fed lower their threshold for the unemployment rate to 6.0% from 6.5%, potentially as soon as next week. This would soften USD in the near term. However, we maintain our view that the higher trajectory for US rates will be positive for the dollar. This will be linked to a cyclical rebound in the US economy and also on account of the Fed succession debate. We maintain our long USDCHF recommendation. The focus today will be on any clues from a NY Fed President Dudley, a key decision-maker on the FOMC. Weekly jobless claims will be watched closely after the August payrolls disappointment – our economists are in line with consensus expecting a moderate increase to 330k.
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BNP Paribas