Dollar recovers as markets await PCE and Nvidia earnings

Dollar awaits PCE data amid dovish Fed hike bets

The US dollar traded lower against its major counterparts yesterday, gaining some ground only against the Japanese yen. That said, today it is rebounding, remaining on the back foot only against the aussie and the yen.

The main driver of the greenback’s weakness has been headlines regarding the fixed income market, with the latest one being a CNBC report saying that the US could use its own Treasury General Account (TGA) to help fund the increased buybacks of long-dated Treasuries.

Many participants are likely not viewing the Treasury’s strategy as a concrete strategy to resolve the bigger problem of a ballooning fiscal debt, which last week exceeded $40 trillion, and maybe that’s why they continued selling their dollars.

However, the US currency rebounded today, perhaps as traders covered their short positions ahead of today’s core PCE inflation data for July, which is the Fed’s favorite inflation metric. The CPI figures pointed to soft inflation, which tilts today’s risks to the downside.

That said, the market is already overly dovish when it comes to expectations about the Fed’s future course of action. They are still assigning a 33% chance of a September hike, while they are penciling in only 35bps worth of rate hikes by the end of 2027. This means that the slightest sign of sticky price prices could lift the implied path, thereby allowing the US dollar to extend its recovery.

Loonie slides as oil falls on new US-Iran ceasefire headlines

Elsewhere, the loonie attempted a comeback on Tuesday, perhaps as Canada said it would impose counter-tariffs of 15, 25, and 50% on US products, a move that could inflict upward pressure on inflation and thereby intensify BoC rate hike expectations.

According to Canada’s Overnight Index Swaps (OIS) market, investors are factoring in 75bps worth of rate hikes by the end of 2027. That said, interest rate expectations will be well reshaped next week when the BoC holds its monetary policy decision.

Today, the loonie is on the back foot again, perhaps due to the sharp fall in oil prices amid reports that the US and Iran are very close to agreeing on a ceasefire deal. What may have also pressured oil were headlines that Iran and Oman are resuming discussions about reopening the Strait of Hormuz.

Wall Street locks gaze on Nvidia earnings, Bitcoin breaches 80k

On Wall Street, all three indices closed in the green yesterday, with the tech-heavy Nasdaq gaining the most. It seems that the relative optimism surrounding the Middle East and the slip in oil prices may have helped stocks on confirmation that borrowing costs are likely to stay low for longer.

That said, stock futures are painting a more cautious picture today, perhaps as the AI behemoth Nvidia is reporting its earnings results after the closing bell. Nvidia has repeatedly beat revenue and earnings estimates, and yet, shares have fallen following the last four releases. This means that a regular beat may not be enough for investors to increase their exposure to the dominant tech powerhouse. Maybe they are looking for a blowout.

In the crypto world, Bitcoin pulled back after emerging above 80k for the first time since mid-May amid growing concerns about US fiscal health. The US Treasury plans led to massive dollar selling, with many calling the phenomenon as “debasement trade”, increasing the allure of non-yielding assets like cryptos and gold. Although the crypto king settled below 79k yesterday, it is resuming its advance today.