USD continued to trade on a back foot as markets re-price for higher likelihood of 50bps cut at upcoming FOMC, OCBC Frances Cheung and Christopher Wong note.

Clean break below 100.50 puts 99.60 in focus

“It remains a close call whether Fed cuts 50 or 25bp. While the magnitude of Fed cut may impact USD moves, Fed’s commentary and dot plot guidance should play a slightly more lasting effect than a 25 or 50bp first cut. The dot plot should provide a reality check on market expectations with regards to rate cut trajectory. As of writing, markets are still expecting 120bps cut for 2024 (with 3 more Fed meetings to go).”

“Apart from rate cut trajectory, global growth momentum matters for USD. If Fed cut is non-recessionary driven and that growth outside-US continues to trudge along (not-hot-not cold), then it is more likely that the USD can remain back footed while other FX, sensitive to growth and rates can outperform (i.e. KRW, MYR, THB). DXY gapped lower in the open again. Last at 100.98. Mild bullish momentum on daily chart intact but RSI fell. 2-way trades likely in the interim.”