DXY: Some consolidation expected in the interim – OCBC

US Dollar (USD) extended its slippage overnight. Fedspeaks this week from officials, including Lisa Cook, Kashkari and Mary Daly have also been on a slightly dovish tilt, adding to USD softness. DXY was last at 98.10, OCBC's FX analysts Frances Cheung and Christopher Wong note.

But bias to sell rallies

"Lisa Cook said that the July jobs report was 'concerning… revisions are somewhat typical of turning points'. Kashkari said that a slowing of the economy may become appropriate to start adjusting the Fed fund rate. He added that tariffs still represent uncertainty, but it is unclear the effects on inflation and how long it will take for tariff effects to become clear. 'If the best of all the options is we make some adjustments and then we have to pause, or even then we have to reverse course, that might be better than just sitting here on hold until we get clarity on tariffs'."

"Labour market softness seen from 3 months of payrolls, and the employment subcomponent of both ISM manufacturing and services have shifted markets to price in a good chance of a cut in Sep. Depending on the outcome of US CPI next week, markets may even shift toward a 25 or 50bp cut for Sep. Recall last year, when the Fed first cut rate, they delivered a 50bp cut. Increase in dovish expectations can weigh on USD."

"Bullish momentum on daily chart shows signs of fading but decline in RSI moderated. Some consolidation expected in the interim but bias to sell rallies. Support here at 97.20. Resistance at 99.60 (100 DMA), 100.50 levels. Tonight we have initial jobless claims data. A weaker print may add to soft labour market narrative and likely to have assymetrically more impact on USD bears."