FOMC September hike still expected

DXY rose around 2% in July, but bigger picture, currently stands around the centre of the range of the last six months. In the near term, which end of that range is tested is becoming increasingly dependent on a single binary event, whether or not the Fed hikes rates on September 17. 

"Between now and then, two payrolls reports and the second estimate of Q2 GDP are probably the key events, along with comments from the core FOMC members. A hike at the September meeting is still expected and the end-Q3 forecasts have USD stronger against all G10 currencies and DXY rallying to retest the March high around 100 (+2.5% from spot)", says RBC capital markets. 

Markets are currently priced for a 50/50 probability of a hike at the September meeting, though economists are more confident, around 80% calling for September lift-off.By the time that meeting gets the probability, on either measure, should have converged to close to either zero or 100%. 

"A significant lightening of long USD positioning through H1, particularly against JPY lowers the hurdle for USD outperformance", added RBC capital markets.