As investors turn their attention towards the potential for Fed rate cuts in 2024, the US dollar is facing a critical week. The upcoming FOMC Meeting Minutes on August 21 will be closely scrutinized, with a focus on the sentiment towards the US economy, the labor market, and the Fed rate path. These factors are expected to have a significant influence on the demand for the US dollar.
While the FOMC Meeting Minutes are important, it is anticipated that speeches from the Jackson Hole Symposium will have a greater impact on US dollar demand. Investors are eagerly awaiting Fed Chair Powell’s comments on Friday, August 23, with expectations that he will signal a September Fed rate cut. Any indications of further rate cuts in November and December could potentially push the USD/JPY exchange rate below 145.
On Thursday, August 22, the release of the S&P Global Services PMI will play a crucial role in shaping investor sentiment towards the US economy. Economists are forecasting a decline in the Services PMI from 55.0 in July to 54.2 in August. A lower-than-expected PMI figure could reignite concerns about a hard economic landing for the US, especially since the services sector accounts for a significant portion of the economy.
The employment and price-related subcomponents of the Services PMI report will be closely watched by investors. A slower pace of job creation and softer input prices could lead to expectations of multiple Fed rate cuts in 2024. Furthermore, any significant slowdown in job creation could fuel speculation about a hard landing for the US economy, impacting wage growth, disposable income, and consumer spending.
In addition to the Services PMI, the release of initial jobless claims data on Thursday, August 22, will also be a key factor in shaping investor sentiment towards the US economy and the Fed rate path. Economists are predicting a slight decrease in initial jobless claims from 227k to 225k. A larger-than-expected decline in jobless claims could alleviate concerns about a hard landing, boosting demand for the US dollar.
Investors should closely monitor the upcoming economic data releases and speeches from key policymakers to assess the potential impact on the US dollar and the broader global economy. Positive figures could lead to a strengthening of the USD/JPY exchange rate, while weaker-than-expected numbers may signal a decline towards 143.
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