Talking Points:

- US Dollar has held firm as Fed rate expectations have steadied around 67% chance for 25-bps rate hike in December.

- Growth expectations for US have fallen sharply in Q3'16.

- See the DailyFX economic calendar for Monday, October 17.

The US Dollar continues to tread water up near recent highs (in both DXY Index and USDOLLAR Index), but more and more concerns are starting to emerge in the short-term. Aside from the fact that the NovemberFOMC meeting is all but procedural - the Fed's not doing anything in such close proximity to the election - market participants seem all but convinced that a 25-bps rate hike is coming in December.

Yet as we pass through the ides of October, there remain significant long-term concerns for the US Dollar that cast doubt on its ability to maintain a bullish trading cycle around the Fed's next hike. At the September FOMC meeting, we saw the Fed reduce its expectations for growth, inflation, and its interest rate glide path from 2016 to 2018 and beyond. Now, it seems that the pessimism about the future is catching up to reality in the present: expectations for Q3'16 US GDP have been cut in half over the past nine weeks, from +3.8% on August 4 to +1.9% on October 14.

Chart 1: Atlanta Fed GDPNow Q3'16 US Growth Forecast

US economic data has been disappointing to say the least, with the Citi Economic Surprise Index having fallen from +43.1 on July 26 to as -7.6 today. Accordingly, with a packed economic calendar this week, the US Dollar, desperate for some good news, may have a chance to receive some. Otherwise, if US Dollar strength persists have a week of weak data, there's no reason to consider it anything other than a 'house of cards' propped up solely by expectations of the Fed raising rates by December.