Barclays: Market overestimates the extent of the Fed rate cut + underestimates August retail sales data, the dollar is expected to rebound by 1%
Barclays foreign exchange strategist Skylar Montgomery Koning said that the market has overestimated the extent of the Fed's rate cut and underestimated the upcoming August retail sales data. She expects the dollar to rebound by 1%. She believes that retail sales data stronger than expected will prompt the market to adjust its rate cut expectations, potentially leading to a rise in the dollar. Despite the general expectation of a rate cut in the market, there is a divergence in expectations regarding the extent of the rate cut
According to the Zhitong Finance and Economics APP, Barclays foreign exchange strategist Skylar Montgomery Koning stated that the dollar is expected to rebound as traders have overestimated the extent of the Fed's rate cut this week and underestimated the US August retail sales data to be released on Tuesday.
The Federal Reserve will announce its September interest rate decision early Thursday Beijing time. Although traders generally expect the Fed to start a rate-cutting cycle, there is still a divergence on whether the cut will be 25 basis points or 50 basis points. The US August retail sales data will be the last major data release before the Fed announces its rate decision.
Skylar Montgomery Koning expects that better-than-expected retail sales data will lead to a smaller rate cut, boosting the dollar. She said, "We expect August retail sales data to be stronger than market expectations, and last month's retail sales data was also very strong." "This may make the market more inclined to price in a 25 basis point rate cut." Skylar Montgomery Koning predicts that as a result, the Bloomberg Dollar Spot Index could rise by 1%.
Currently, the market expects a 0.2% month-on-month decline in US August retail sales against the backdrop of weak auto sales. If the final data matches market expectations, it will support the view that the recent slowdown in the labor market will lead to more cautious consumers.
However, Skylar Montgomery Koning pointed out that when it comes to rate cut expectations, the market often overreacts. She said, "During those soft landing periods, if you look at history, most of the time the market always overestimates the extent of the Fed's rate cuts." "When expectations reach a turning point, the dollar will rebound."