The upcoming week poses a critical juncture for the US dollar, as investors closely monitor the possibility of 2024 Fed rate cuts amidst concerns of a US economic downturn. The FOMC Meeting Minutes scheduled for Wednesday, August 21, are likely to draw significant attention from investors, shaping sentiment towards the US economy, labor market, and the future trajectory of Fed rates. However, it is anticipated that speeches from the Jackson Hole Symposium will have a more pronounced effect on US dollar demand, with markets eagerly awaiting cues from Fed Chair Powell regarding a potential September rate cut.
Expectations for rate cuts in November and December could potentially drive the USD/JPY pair below the 145 mark, depending on investors’ perceptions of the US labor market. The release of the S&P Global Services PMI on Thursday, August 22, will play a significant role in shaping investor sentiment towards the US economy. Projections indicate a decline in the Services PMI from 55.0 in July to 54.2 in August, potentially reigniting fears of a severe economic downturn given the considerable weight of the services sector in the US economy.
Key subcomponents such as employment and price-related indicators will be closely monitored, as a slower pace of job creation and softer input prices could fuel expectations of multiple Fed rate cuts in 2024. Concerns about a possible US hard landing might intensify in the event of a significant slowdown in job creation rates, potentially affecting wage growth, disposable income, and consumer spending. Given that consumer spending contributes over 60% to GDP, any downward trend in this sector could have far-reaching implications for the overall US economy.
Furthermore, the release of initial jobless claims data on Thursday, August 22, could provide additional insights into the state of the US economy and the potential path of Fed rates. Economists are forecasting a decline in initial jobless claims from 227k in the week ending August 10 to 225k in the week ending August 17. A more substantial than expected decrease in jobless claims could alleviate concerns about a severe economic slowdown, thereby boosting demand for the US dollar. However, investors are advised to consider a comprehensive analysis of both the Services PMI and jobless claims data, as positive outcomes could propel the USD/JPY pair towards 150 while disappointing figures might signal a decline towards 143.