Dollar not quite cooked yet

A quiet month-end week has seen the dollar stabilise – in spite of the Trump administration’s latest escalation of its attacks on the Fed. The lack of follow-through after those attacks and Fed Chair Powell’s dovish Jackson Hole speech last week suggests that, given the extent of Fed cuts already discounted in money markets, the bar for another major shift lower in US rate expectations and the dollar is high. Another weak US payrolls report next week could of course clear that bar. But consensus expectations for employment growth have also shifted markedly lower: it would probably take an exceptionally poor report to drive rate expectations and the dollar much lower from here. As such, we continue to think that the greenback is still likely to stabilise over the coming months.