Phnom Penh – The U.S. Dollar (USD) remains under significant selling pressure, pushing the DXY index towards a one-week low near 99.60, as a series of weaker-than-expected economic indicators cement market expectations for a Federal Reserve rate cut in December.
Key Drivers
Recent economic data has signaled a clear cooling trend in the U.S. economy, reinforcing the disinflation narrative and leading to a decisive shift in market positioning:
• Soft Consumer & Wholesale Data: September’s retail sales and core wholesale prices rose less than anticipated, suggesting cooling consumer momentum and easing inflationary pressure.
• Declining Confidence: The Conference Board’s Consumer Confidence Index for November saw an unexpected decline, highlighting rising concerns among consumers about the labor market and their purchasing power.
• Weak Payrolls: The ADP private payroll estimate remained in contractionary territory, further underscoring a potential softening in the job market.
Analysts, including those at Deutsche Bank, suggest investors are increasingly confident the Federal Reserve will ease policy in two weeks. The central bank’s focus appears to be shifting from aggressively fighting inflation toward cushioning a gradual economic slowdown.
Market Impact and Strategy
The prospect of lower U.S. policy rates directly weakens the dollar’s carry advantage, driving investors to seek higher yields elsewhere.
• DXY Index: The dollar index traded at 99.757, barely recovering from the low of 99.602. This movement reflects a realignment of rate expectations.
• Treasuries & FX: The policy pivot confidence is triggering flows into rate-sensitive assets, including longer-dated U.S. Treasuries (with the two-year yield edging lower), and higher-yielding emerging market and selective European and Asian currencies.
Forward View: Data in Focus
The dollar’s direction will now hinge on upcoming labor and capital spending data:
• Bullish Scenario (Weaker Dollar): A sustained rise in weekly jobless claims or weaker durable goods orders (due Thursday, 1330 GMT) would confirm the need for a December cut, potentially sending the DXY to retest 99.50 support.
• Bearish Scenario (Stabilizing Dollar): Should claims remain contained and durable goods beat expectations, the market could reassess the timing of the policy easing, stabilizing the dollar and limiting upside moves in EUR, GBP, and commodity-linked currencies.
Conclusion: A weaker U.S. dollar is emerging as a tactical trading theme ahead of the December Fed meeting, favoring selective long positioning in high-yielding and commodity-sensitive currencies. Investors are advised to closely monitor labor market resilience and yield spreads, as a surprise strength in job data remains the key risk to this view.