US Dollar Outlook Hinges on ISM Manufacturing Survey, NFP Report

US Dollar Talking Points

The slew of US data prints on tap for the start of September are likely to sway the Dollar as the Federal Reserve retains an outcome-based approach for monetary policy.

Fundamental Forecast for US Dollar: Neutral

The US Dollar Index (DXY) trades to a fresh weekly low (92.66) as Chairman Jerome Powell acknowledges the “progress toward maximum employment” while speaking at the Kansas City Fed Economic Symposium, with the central bank head indicating that the Federal Open Market Committee (FOMC) could shift gears later this year “if the economy evolved broadly as anticipated.”

The comments suggest the FOMC will retain the current policy at its next interest rate decision on September 22 as the central bank carries out an outcome-based approach, and it seems as though the Fed will wait for a further improvement in the labor market before deploying an exit strategy as Chairman Powell insists that “we have much ground to cover to reach maximum employment.”

In turn, a downtick in the ISM Manufacturing survey along with a slowdown in the US Non-Farm Payrolls (NFP) report may drag on the Greenback as it warns of a less robust recovery, but a slew of positive developments may generate a bullish reaction in the US Dollar as it puts pressure on the FOMC to normalize monetary policy sooner rather than later.

With that said, the key US data prints on tap for the start of September are likely to influence the near-term outlook for the Dollar even though Fed officials show a greater willingness to switch gears as the central bank sticks to an outcome-based approach for monetary policy.

--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong