Dollar Gains on Concerns about Less-Dovish Fed

Core Insights - The dollar index (DXY) has risen by +0.63%, reaching a 1.5-week high, driven by signals from Fed Chair Powell indicating a less dovish stance than market expectations [1] - US new home sales in August surged by +20.5% month-over-month to 800,000, marking a 3.5-year high, contrary to expectations of a decline [2] - The euro is under pressure due to a decline in German business confidence, with the IFO business climate survey falling to a 4-month low [3][4] Group 1: Dollar Strength and Economic Indicators - The dollar's strength is supported by a 93% market expectation of a -25 basis point rate cut by the Fed at the upcoming FOMC meeting [3] - The unexpected jump in US new home sales to 800,000 contrasts sharply with the anticipated decline to 650,000, indicating robust housing market activity [2] - The euro's weakness is compounded by the German IFO business climate survey dropping -1.2 points to 87.7, below the expected increase to 89.4 [4] Group 2: Central Bank Divergence - The European Central Bank (ECB) is perceived to be nearing the end of its rate-cutting cycle, while the Fed is expected to implement two more rate cuts by year-end [4] - ECB Executive Board member Cipollone noted that inflation risks in the Eurozone are balanced, with a minimal chance of a rate cut at the upcoming ECB meeting [5] Group 3: Japanese Economic Activity - The USD/JPY exchange rate increased by +0.77%, with the yen falling to a 2.5-week low due to weak manufacturing activity in Japan, as indicated by a contraction in the S&P manufacturing PMI [6] - Japan's August machine tool orders were revised upward to +8.5% year-over-year, the largest increase in five months, suggesting some positive momentum in the manufacturing sector [7]