The dollar index (DXY00) on Wednesday rose by +0.65% and posted a 1.5-week high.  The dollar rose on Wednesday, with positive carryover from Tuesday, when Fed Chair Powell offered no hints on whether he would support a rate cut at next month's FOMC meeting, signaling that the Fed may be less dovish than the markets have currently priced in.  Also, hawkish comments from Chicago Fed President Austan Goolsbee supported the dollar when he said he could be less willing to support further Fed rate cuts.  The dol ...

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]

Group 1 - The dollar index rose by +0.50% due to positive comments from Fed Chair Powell regarding inflation and expectations of limited interest rate cuts by the Fed [1] - US weekly initial unemployment claims fell by -33,000 to 231,000, indicating a stronger labor market than the expected 240,000 [3] - The September Philadelphia Fed business outlook survey increased by +23.5 to an 8-month high of 23.2, surpassing expectations of 1.7 [3] Group 2 - Concerns over Fed independence may lead foreign investors to sell dollar assets, particularly in light of President Trump's attempts to fire Fed Governor Cook [2] - The euro fell by -0.20% due to a stronger dollar and fiscal concerns, as the German government plans to borrow about 20% more than originally planned in Q4 [4] - Germany's finance agency plans to raise 90.5 billion euros ($107 billion) in Q4, which is 15 billion euros more than previously projected [5] Group 3 - The markets are pricing in a 93% chance of a -25 bp rate cut at the next FOMC meeting on October 28-29 [4] - Swaps indicate a 2% chance of a -25 bp rate cut by the ECB at the October 30 policy meeting [6] - The USD/JPY rose by +0.59% as the yen fell to a 1-week low due to a stronger dollar and reduced safe-haven demand following a rally in the Nikkei Stock Index [6]