US data last Thursday/Friday where core inflation, 1y inflation expectations eased, 2Q GDP was revised higher and personal spending rose – suggested that US economy is on course for soft-landing. Such a scenario remains consistent with our house call for no panic and gradual pace of Fed cut – 50bps cut for this year, starting in September, OCBC’s FX analyst Christopher Wong notes.

Three scenarios exist for US data

“The US Dollar (USD) and markets can be more sensitive to a busy week of US labour market-related releases including ISM employment data (Tue), JOLTs job openings (Wed), ADP employment, ISM services employment (Thu), and the highlight US payrolls report on Fri. Data interpretation may be tricky this time, given that markets are already pricing in a very dovish outcome for the Fed this year (about 100bps cut; 31% probability of 50bp cut in Sep).”

“We identified 3 possible scenarios: 1/ if US data comes in much better than expected. US equities can rally, USD can go up while dovish Fed cut expectations can unwind. 2/ If US data comes in much worse than expected. Then the soft-landing view may be in doubt. US equities are at risk of being sold off (recall the 5 Aug market crash). 3/ If US data comes in largely in line with estimates – not good, not bad. This supports soft landing story.”