FOMC likely to bring some relief for struggling greenback

The dollar has weakened a little further this week after US inflation and jobs data again came out on the soft side. This probably cements a 25bp rate cut next week’s FOMC meeting. But we continue to think that money markets are over-estimating the pace and extent of FOMC cuts, and that the committee will push back a bit against the current pricing next week. As such, our base case remains that US interest rate expectations and the dollar will rebound a bit in the coming months.