As the US dollar holds steady ahead of a critical week of economic data releases, its resilience in the global financial markets remains unshaken. While some analysts are eyeing potential factors that could soften the currency, Goldman Sachs suggests that the USD will continue to be a challenging currency to dethrone.
Key Economic Data to Influence Fed Decisions:
Non-Farm Payroll (NFP) Report: This employment data serves as a critical indicator for the Federal Reserve's policy-setting moves. Goldman Sachs points out that an upside surprise in the NFP could prompt the market to reprice the odds of a September rate hike.
JOLTS and ISM Manufacturing: Alongside the NFP, Goldman Sachs notes that these additional indicators offer vital clues about the U.S. economy and could tilt the balance in rate hike expectations.
Upcoming Inflation Data: Goldman Sachs underscores the importance of PCE inflation figures, due on August 31, and CPI data set for release on September 13. A significant beat on these numbers could set the stage for market expectations about inflation and interest rates.
Baseline Scenario: No Hike in September
Goldman Sachs' economic team currently expects no rate hike from the Fed in September. They believe that any further tightening could be unnecessary given the current data landscape. However, the investment bank admits that this narrative could swiftly change if the upcoming data releases come in stronger than expected.
Challenges to USD Downside:
In Goldman Sachs' assessment, substantial downside to the U.S. dollar would likely require a combination of better growth in Europe and China, along with continuing disinflationary pressures in the U.S. The analysts note that this is becoming increasingly difficult to achieve, making the USD a hard bar to beat.
Conclusion:
While the USD may waver slightly based on short-term economic data and market sentiment, Goldman Sachs maintains that the currency remains formidable. Their analysts argue that any significant downward pressure on the USD would necessitate a highly specific set of conditions, which seem increasingly unlikely. Therefore, as key U.S. economic data releases approach, the investment bank views the USD as a resilient player in the global financial markets.
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