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The US Dollar broke out to its highest levels since March yesterday as the latest round of US data added further uncertainty to the Fed outlook. August retail sales were seen coming in above forecasts with the headline reading printing 0.6%, well above the 0.1% the market was looking for. Similarly, the core reading printed 0.6%, above the 0.4% the market was looking for. On the back of the jump in the NFP last month and with inflation also coming in above forecasts, the data adds to the growing view that the Fed might well hike one last time this year.
 

Hawkish Fed Expectations Building Again

Market pricing for a November/December hike has jumped this week to around 40%. While no action is expected at the upcoming September meeting next week, the market is now wary that the Fed might well signal a further hike is still a strong option. In particular, traders will be closely looking at the updated dot plot forecasts to assess the chances of a further 2023 hike. Looking ahead today, Empire State Manufacturing and prelim UoM Consumer Sentiment readings are both due. If we see any further data strength this will no doubt push USD higher into next week’s meeting.
 

Technical Views

DXY

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The rally this week has seen the index breaking out above the 104.95 level and moving through 105. This is a key technical break for the market and, while above this level, the focus is on a further push higher and a move up towards the 107.57 level longer-run. To the downside, should we drop back below 104.95, 103.48 will be the key support to monitor. 

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