The dollar index (DXY00) today is up by +0.07%. The dollar is posting modest gains today ahead of the results of today's FOMC meeting. Weakness in stocks today is boosting some liquidity demand for the dollar. Gains in the dollar are muted after the US Aug housing starts and building permits reports fell more than expected.
The dollar remains under pressure on expectations for the Fed to cut interest rates by -25 bp at today's conclusion of the 2-day FOMC meeting. Also, increased expectations for Fed easing through year-end are bearish for the dollar.
The dollar is also being undercut by concerns over Fed independence, which could prompt foreign investors to dump dollar assets as President Trump attempts to fire Fed Governor Cook, and by Stephen Miran's intention to be a Fed Governor while still technically holding his White House job on the Council of Economic Advisors.
US Aug housing starts fell -8.5% m/m to 1.307 million, weaker than expectations of 1.365 million. Aug building permits, a proxy for future construction, unexpectedly fell -3.7% m/m to a 5.25-year low of 1.312 million, weaker than expectations of an increase to 1.370 million.
The markets are pricing in a 100% chance of a -25 bp rate cut and a 7% chance of a 50 bp rate cut at today's conclusion of 2-day FOMC meeting. After the fully expected -25 bp rate cut at this week's meeting, the markets are discounting an 86% chance of a second -25 bp rate cut at the next FOMC meeting on Oct 28-29. The markets are now pricing in an overall -69 bp rate cut in the federal funds rate by year-end to 3.64% from the current 4.33% rate.
EUR/USD (^EURUSD) today is down by -0.09%. The strength of the dollar today is weighing on the euro. Also, today's downward revision to Eurozone Aug CPI is dovish for ECB policy and negative for the euro.
Central bank divergence is supporting the euro, as the markets view the ECB as largely finished with its rate-cut cycle, while the Fed is expected to cut rates by roughly three times by the end of this year.
Eurozone Aug CPI was revised lower to +2.0% y/y from the previously reported +2.1% y/y. The Aug core CPI was left unrevised at +2.3% y/y.
Swaps are pricing in a 2% chance of a -25 bp rate cut by the ECB at the October 30 policy meeting.