Dollar braces for data-heavy week

Chinese stocks paved the way higher for Asian shares on Tuesday as optimism from China’s measures to cut stamp duty boosted risk appetite. European futures are pointing to a positive open with the UK returning from a day’s holiday ahead of a data-heavy week for markets. In the commodity space, gold is modestly higher this morning with bulls drawing strength from a softer dollar and falling Treasury yields. Oil markets are flat, waiting for the next fundamental spark as supply concerns counter worries over demand.

US PCE Inflation and NFP in focus

The US dollar was choppy on Tuesday as investors watched on the sidelines ahead of a slew of key US economic releases over the next few days.

Due to the Federal Reserve's current data dependent stance, every release of US economic data could play a critical role in determining whether the Fed raises rates again in 2023. As a result, close attention will be paid to upcoming releases such as August consumer confidence, Q2 GDP (2nd estimate), and weekly initial jobless claims.

However, the potential market shakers could be Thursday’s PCE inflation data and the NFP report on Friday. The Fed’s preferred inflation gauge, the Core Personal Consumption Expenditure will be closely scrutinised by investors for more signs of inflationary pressures cooling. Regarding the August NFP report, markets expect the US economy to have added 170,000 jobs in August with the unemployment rate unchanged at 3.5%. Ultimately, a strong set of economic releases may strengthen the argument around the Fed raising rates one more time this year, especially after Powell’s hawkish remarks last Friday.

Regarding the dollar, it has appreciated against every G10 currency this month with the USD Index trading around 104.00 as of writing. Although the trend is bullish on the daily charts, there are early signs of exhaustion with a break under 103.30 encouraging bears to jump back into the scene. Should 104.00 prove to be reliable support, prices could push back above 104.50, rising towards levels not seen since March around 105.00.