Asian session review: the US dollar is showing positive dynamics

During today's Asian trading, the US dollar rose against major currencies, but remained near a 14-month low, while investors prepare for the publication of US inflation data, which may provide additional clues about the size of the next Fed rate cut. 

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.11% to 100.63. Yesterday, the index fell by 0.33%, despite the fact that new statistical data indicated an optimistic economic outlook for the United States. Today, investors will focus on data on personal income and expenses, as well as the personal consumption expenditures price index (the Fed's preferred inflation indicator). Personal spending rose 0.5% in July in nominal terms and by a still steady 0.4% adjusted for inflation. The combination of lower inflation and steady income growth helps support consumers, but cannot fully explain the increase in spending. Despite a slight increase in real disposable personal income, spending growth outpaced income for the sixth month in a row in July, as a result of which the savings rate fell to 2.9%. This was only the second time the savings rate has dropped below 3.0% since 2008, indicating that consumers are giving up savings to spend more. Do consumers spend voluntarily or are they forced to? The retail sales report for August revealed widespread weakness in 7 out of 13 categories, with categories such as food and beverages, clothing and electronics recording a noticeable drop. However, the surge in online purchases led to a 0.3% increase in sales in the control group, which prepared personal expenses for a solid result in August. According to forecasts, personal income increased by 0.4% in August after an increase of 0.3% in July, and personal expenses increased by 0.3% after an increase of 0.5%. The core personal consumption expenditure price index is expected to have increased by 0.2% over the month and 2.7% per annum after increasing by 0.2% and 2.6%, respectively, in July. Overall, analysts do not expect the data to materially shift market pricing for U.S. rates unless there is a huge miss. According to the CME FedWatch Tool, markets see a 51.3% probability of a 0.50% rate cut at the November meeting and a 50.1% probability of a 0.25% rate cut in December, with a 0.75% rate cut expected by the end of the year.

The yen rose by more than 1% against the US dollar amid news of Shigeru Ishiba's victory in the race for the post of the next prime minister of Japan. Shigeru Ishiba received 215 votes in the second round, while Sanae Takaichi received only 194 votes. This is good news for yen bulls, as Takaichi was the one who openly criticized the Bank of Japan for raising rates too quickly. So Ishiba's victory at least takes some of that pressure off.