Chinese Covid concerns blacken Monday’s mood, but improving European data and a desire to reduce positions should see the Dollar slipping backwards by mid-week, in the opinion of Kit Juckes, Chief Global FX Strategist at Société Générale.
“My bigger concern is whether the driver of recent (relative) Dollar weakness is made up of (reasonable) hopes that the pace of Fed rate hikes is set to slow, hard landings can be avoided and we are heading to a more investment-friendly market backdrop in the first half of 2023, or if market participants are simply looking at end-of-year position adjustments (cutting back on long dollar positions) and finding a story (soft landing, risks reduced etc) which fits the price action. I doubt we’ll learn much on this Monday morning, after China reported its first Covid deaths in months, and reopening chatter hit a pothole.”
“The Chicago Fed Index is this afternoon’s data ‘highlight’ but the split of FOMC speakers pushing ‘higher for longer’ relative to those who think there’s less than 1% more coming in hikes, will be more interesting in the days ahead.”
“Still, in the background, there’s more room for optimism about Europe’s prospects than in the US and if the Dollar does have a really good start to the week, that may provide room for a slower, less exciting fall back in the days ahead, particularly if we see improving PMIs on Wednesday.”
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