Week Head September 22nd: Dollar Strength After Measured Fed Easing

The Financial Source Podcast

Show Notes: “Dollar Rebound, Fragile PMIs, and a Cautious Fed — What Matters for FX This Week”

Episode summary
This episode unpacks how a less-dovish-than-priced FOMC set off a broad dollar rebound and what that means for G7 FX and gold in the week ahead. We break down the dots, Powell’s “insurance cut” framing, and why upgraded growth and firmer inflation paths argue against a deep easing cycle. We then map the implications across GBP, EUR, CAD, NZD, and JPY, and close with what to watch on PMIs, PCE, SNB, Riksbank, Aussie CPI, and Tokyo CPI.

Key themes & takeaways

• FOMC reality check: Markets priced a deeper easing path than the Fed signaled. A 25bp “insurance” cut landed alongside higher growth forecasts, slightly firmer inflation paths, and no appetite for a fast-cutting cycle.
• Dollar bias: The combination of resilient U.S. growth and only gradual disinflation makes it hard to maintain short-USD exposure. Positioning still has room to unwind.
• Europe: Even with a small PMI uptick, the growth signal remains weak. It would take a sizable deterioration to revive near-term ECB cut bets; otherwise EUR rallies risk fading.
• UK: Fiscal slippage is biting. Borrowing of ~£84bn year-to-date (Apr–Aug) and nearly £18bn in August lifted gilt yields and hit GBP, with policy options constrained ahead of November’s budget.
• Canada: CAD’s Friday surge looks more like profit-taking and headline-chasing than a fundamentals turn; underlying growth/labor trends and BoC bias still argue for USD/CAD support absent a clear trade breakthrough.
• New Zealand: Soft Q2 GDP catalyzed a swift 2.6% slide in NZD/USD over two sessions, reinforcing the impact of growth disappointments under a stronger-USD backdrop.
• Japan: Tokyo CPI remains the best guide to the national print and BoJ read-through; Governor Ueda stresses vigilance but sees the economy withstanding tariff effects for now.
• Gold: Momentum keeps it near record territory even as the dollar firms; real-rate dynamics via PCE will be pivotal for direction from here.

Data & policy calendar (focus only on G7 FX/CBs & commodities)

• Tue: EZ/UK/US Flash PMIs (Sep) — Eurozone mfg ~51.0, services ~50.5, composite ~51.2; UK services ~53.9, mfg ~46.9, composite ~53.0.
• Tue: Riksbank decision — debate between a 25bp cut to 1.75% vs a hold; watch the updated rate path.
• Wed: Australia Monthly CPI (Aug) — consensus 2.9% y/y, some looking 3.1% on base effects.
• Thu: SNB decision — base case hold at 0.00%; Schlegel set a high bar for negative rates; watch any CHF jawboning.
• Thu: US Durable Goods (Aug), US Q2 GDP final.
• Fri: Tokyo CPI (Sep) — last print 2.6% y/y; core 2.5%; “super core” 1.5%.
• Fri: US PCE (Aug) — Powell signaled headline 2.7% y/y, core 2.9%; monthly core estimates cluster roughly 0.21–0.35% m/m.

Pairs & assets discussed
USD, EUR/USD, GBP/USD, USD/CAD, NZD/USD, JPY (Tokyo CPI/BoJ context), Gold.

Why this matters for traders

• The growth-inflation-policy mix skews toward a shallower Fed easing path than markets had pre-FOMC, supporting the dollar.
• UK fiscal dynamics are resurfacing as a direct FX driver via the gilt channel.
• Data asymmetry favors USD on soft European/UK PMIs or firm U.S. PCE, while upside PMI surprises in Europe/UK may struggle for follow-through.
• Gold’s resilience hinges on real-rate expectations; PCE is the near-term inflection.

Suggested episode pull-quotes

• “An insurance cut from a position of strength is not the start of a deep easing cycle.”
• “Fiscal slippage is back on the FX radar in the UK, and the gilt link is doing the heavy lifting.”
• “For EUR and GBP, small PMI beats won’t fix a weak growth signal; misses would.”

Resources mentioned

• FOMC statement, Summary of Economic Projections (dots and inflation paths)
• U.S. PCE/CPI/PPI context for August
• UK Public Sector Net Borrowing release
• Flash PMI releases (EZ/UK/US)
• Riksbank, SNB policy decisions
• Australia Monthly CPI; Tokyo CPI

Disclosure
The views discussed are for informational purposes only and are not investment advice. FX and commodities involve significant risk. Always conduct your own analysis and manage risk appropriately.