Focus today on FOMC (2am SGT) – whether its 25 or 50bp cut and admittedly, this remains a close call. USD saw a modest rebound, alongside UST yields overnight after retail sales and industrial production came in better than expected. The better print in activity data somewhat still suggests that US economy is still likely to be on a path to soft landing. DXY was last at 100.79, OCBC FX analysts Frances Cheung and Christopher Wong note.

Clean break below 100.50 puts 99.60 in focus

“Given that markets have priced in a much dovish Fed (70% probability for 50bp cut), the scenario where Fed only cuts 25bp may force a nasty USD short squeeze. While the magnitude of Fed cut is highly in focus and may impact USD moves in the short term, we opined that Fed’s commentary and dot plot guidance should play a slightly more lasting effect than a 25 or 50bp first cut itself.”

“And beyond this rate cut hype, markets' focus should shift back to watching global growth momentum. We emphasized that it is important to consider what the market environment is when rate cut cycle gets going. If Fed cut is non-recessionary driven and that growth outside-US continues to manage ok in a not-hot-not cold setting, then the USD can remain back footed.”