HSBC: Market concerns about recession are overdone, the US dollar will rebound in September

In recent months, as the US economy has slowed down and expectations of a Fed rate cut have increased, the US dollar has plummeted significantly from its highs in the first half of the year, with the US dollar index falling to a 13-month low. In a research report released on August 23rd, HSBC forex strategists Daragh Maher, Paul Mackel, and others stated that the adjustment of the US dollar has come to an end, and with the weakening expectations of a Fed rate cut, it is expected that the US dollar will gradually regain lost ground. Exaggerated Recession Risks, US Dollar Overly Weak Currently, the market has priced in a rate cut of up to 100 basis points within the year. However, HSBC believes that there is a possibility that the risks of a US economic recession have been exaggerated, and does not support a more aggressive rate cut by the Fed. The report points out that there is no evidence yet to suggest that a US economic recession is imminent: initial jobless claims have not significantly increased, retail sales and other consumer data still show resilience. Furthermore, according to the bank's estimates, the US core PCE price index is expected to rise again in the fourth quarter, indicating that the US economy may not only avoid a "soft landing" but may even experience a "no landing," which could dampen rate cut expectations. Moreover, based on HSBC's calculations, even in a scenario of achieving a "soft landing," a rate cut of 50 basis points would already be at an excessive level. Overall, HSBC believes that the recession panic triggered by the July non-farm payroll data is temporary and overblown, and compared to the aggressive rate cut pricing it has led to, the decline of the US dollar also seems somewhat "excessively weak." The report emphasizes that the August non-farm payroll report to be released on September 6th will be crucial. Additionally, the report adds that the correlation between the US dollar and risk appetite has trended towards zero, and the previous rise in the stock market has not exacerbated the decline of the US dollar. The weakness of the US dollar is actually due to a "considerable" position adjustment. Data from the International Money Market (IMM) shows a decrease in "net long" positions of US dollar positions, with the overall position ratio moving closer to neutral, indicating that the squeeze has ended