Forex Market Update - Dollar Remains Bearish

The US dollar has stayed weak this morning in Asia trading in a 1.2838-1.2861 range against the EUR and a 115.57-115.88 range against the JPY.

The dollar remains weak after yesterday's core CPI data came out in line with reduced expectations of a 0.2%m/m rise and housing starts continued to decline.

The data caused ten year bond yields to fall further to 4.85% while the S&P rose further to 0.77% as financial markets speculated more that the Fed funds cycle had peaked now at 5.25%.

Hawkish comments from Dallas Fed President that inflation remains the key risk to the economy failed to change the sentiment of the markets yesterday. As such we think investors should stay bearish on the greenback.

With the Fed cycle having now paused, many other central banks like the ECB, BOE, RBA and Norges Bank all raising interest rates, global imbalances becoming a focus again with the upcoming G7 and IMF meetings in Asia, the threat of Senators Schumer and Graham presenting a bill on imposing tariffs on China in September and central banks continuing to diversify their foreign exchange reserves away from the greenback, the risks are clearly skewed towards a weaker USD.

The major focus today will be on the Philly Fed for August due at 1600GMT. The market expects an improvement to 8.7 from 6.0 in July. Weekly jobless claims are also due at 1230GMT, with the market expecting 315k in new claims, little changed from 319k in the week prior. Fed President Fisher speaks again at 1700 GMT on the US economy at 1730GMT.