Caution trading amid overblown US recession fears and rate cut expectations
As projected in our previous FX report, last Friday’s weaker-thanexpected US jobs report has substantially influenced expectations for the Fed’s policy direction, with the market now pricing in a 50 bps rate cut in September. This shift has dragged the USD Index (DXY) down to 102.7 and pulled the 10-year US Treasury yield below 3.8% on Monday, driving the ringgit to a stronger-thanexpected level of 4.43/USD. Subsequently, the ringgit corrected to around 4.70-4.50 as the DXY rebounded above 103.0, spurred by a recovery in US services sector activity, which eased recession fears. Additionally, a tech-driven sell-off and the unwinding of yen carry trades have exerted further downward pressure on the DXY.
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