USD edges higher on Waller comment, more losses ahead - Scotiabank

The US Dollar (USD) is tracking a little higher into the end of the week after finding a little support overnight on comments from Fed Governor Waller, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD trades mildly higher after Waller comments favour 25bps cut

"He continues to support the outlook for a 25bps rate cut and indicated that a bolder, 50bps reduction in was not needed at this point. He said a larger rat cut may be justified if the US economy weakens sharply. Sterling is a clear underperformer on the session as investors continue to focus on the UK government's fiscal challenges and revenue-raising options. The SEK, NOK and NZD are more resistant to the USD's advance and are holding little changed on the session. Risk appetite looks a little soft, however, with European stocks weak and US equity futures in the red."

"The USD has given back much of the July rebound over the course of August and we anticipate more losses in the months ahead behind easier Fed policy and investor convers over challenges facing US institutions. While Fed Governor Cook is challenging President Trump's attempts to oust her, former Governor Lael Brainard warned that the maneouverings may be a preamble to removing a number of Fed regional presidents next year to reshape the FOMC entirely. Broadly, options pricing reflects a premium for USD puts over calls over a 1- and 3-month horizon, indicating investors continue to anticipate medium-term weakness in the USD."

"US data reports this morning may allow the USD to hold a bid into the weekend, however. US July Personal Income and spending are expected to advance nicely (+0.4% and +0.5% M/M) for July. The core PCE price index is forecast to rise 0.3% M/M and pick up to 2.9% in the year (from 2.8% in June) which may give the USD a small boost. Wholesale Inventories are called 0.2% higher for July and the August Chicago PMI is expected to soften to 46.5 (from 47.1). Final August U. Michigan Sentiment is expected to be unchanged from the preliminary and soft-ish report of 58.6."