Wednesday, August 21, 2019 4:20 AM EDT
The US Dollar may rise at the expense of the Euro and equity markets if the Fed meeting minutes hammer investors’ hopes for aggressive stimulus. As outlined in my US Dollar forecast, the Greenback may continue to gather momentum as a dimming fundamental outlook and growing recession fears place a premium on liquidity above return.
At the most recent FOMC meeting, Fed Chairman Jerome Powell cooled rate cut bets after he said the reduction was not the start of an easing cycle but rather insurance against rising uncertainty. San Francisco Federal Reserve President Mary Daly on Tuesday had a similar message when she said that the 25-basis point cut was delivered to “[continue the] economic expansion” and not due to the perception of an impending downturn.
Markets may be disappointed that their expectations for accommodative monetary policy may be further away than they had hoped. The rift in their forecasts vs reality may result in volatility and uncertainty which will likely end up being tailwinds for anti-risk assets like the US Dollar and the Japanese Yen. However, souring sentiment may then cause cycle-sensitive FX and equities to fall from capital outflow.
CHART OF THE DAY: US Dollar Index May Continue to Climb as Premium for Liquidity Rises
US Dollar chart created using TradingView
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