Dollar Posts Modest Gains Ahead of FOMC Decision

Group 1: Dollar Index and Market Reactions - The dollar index (DXY00) is up by +0.07%, with modest gains observed ahead of the FOMC meeting results [1] - Weakness in stocks is increasing liquidity demand for the dollar, although gains are muted following disappointing housing data [1] - The market is pricing in a 100% chance of a -25 basis point (bp) rate cut at the FOMC meeting, with an 86% chance of a second -25 bp cut at the next meeting [5] Group 2: Housing Market Data - US August housing starts fell by -8.5% month-over-month (m/m) to 1.307 million, below expectations of 1.365 million [4] - Building permits for August unexpectedly fell by -3.7% m/m to a 5.25-year low of 1.312 million, contrary to expectations of an increase to 1.370 million [4] Group 3: Federal Reserve and Interest Rate Expectations - The dollar is under pressure due to expectations for the Fed to cut interest rates by -25 bp at the conclusion of the FOMC meeting [2] - Concerns over Fed independence may lead to foreign investors selling dollar assets, particularly in light of political tensions surrounding Fed leadership [3] - The markets are anticipating an overall -69 bp cut in the federal funds rate by year-end, reducing it from the current 4.33% to 3.64% [5] Group 4: Eurozone Economic Indicators - The euro is down by -0.09% as the strength of the dollar weighs on it, compounded by a downward revision to Eurozone August CPI [6] - Eurozone August CPI was revised lower to +2.0% year-over-year (y/y) from +2.1% y/y, while core CPI remains unchanged at +2.3% y/y [7] - Swaps indicate a 2% chance of a -25 bp rate cut by the ECB at the upcoming policy meeting [7]