Weekly Fundamental US Dollar Forecast: When Will Fed Raise Rates Or Taper?

 

Weekly Fundamental US Dollar Forecast: When Will Fed Raise Rates or Taper?

FUNDAMENTAL FORECAST FOR THE US DOLLAR: NEUTRAL

  • The US Dollar (via the DXY Index) has been creeping higher throughout July, even as US Treasury yields and Fed rate hike expectations have pulled back.
  • The Federal Reserve’s resolute stance that inflation is “largely transitory” will remain well-anchored coming out of the July FOMC meeting; all eyes are on the August Jackson Hole gathering.
  • According to the IG Client Sentiment Index, the US Dollar has a mixed bias heading into the last week of the month.

US DOLLAR SURVIVING

The US Dollar (via the DXY Index) has been overcoming naysayers, doubters, and even negative seasonal trends as it has worked its way through July. Despite the pullback in US Treasury yields and Fed rate hike expectations, the greenback has seemingly benefited from delta variant concerns elsewhere around the world. Relatively speaking, the US is offering higher growth rates in the near-term as parts of Asia, Australia, and Europe move back towards lockdowns. The DXY Index’ close for the week produced its seventh highest close of 2021 (out of 149 trading days thus far).

US TREASURY YIELD CURVE (1-YEAR TO 30-YEARS) (JULY 2020 TO JULY 2021) (CHART 2)

Weekly Fundamental US Dollar Forecast: When Will Fed Raise Rates or Taper?

Historically speaking, the combination of falling US Treasury yields coupled with dampened Fed rate hike odds has produced a difficult trading environment for the US Dollar. An otherwise typically difficult environment suggests that a more significant shift in capital is occurring globally: US equities are up, US bonds prices are up (yields down), and the DXY Index is trading higher.

US ECONOMIC CALENDAR LOADED WITH RISK

The move into the last week of the month brings forth an important smattering of event risk based out of the US. Several high rated economic releases alongside the July Federal Reserve policy suggest heightened activity in FX markets over the coming days.

  • On Monday, July 26, June new home sales data will be released followed by the July Dallas Fed manufacturing index.
  • On Tuesday, July 27, June US durable goods orders, the May US house price index, and the July US Conference Board consumer index are all due.
  • On Wednesday, July 28, the June US trade balance will be released in the morning followed by the results of the July FOMC meeting, as well as Fed Chair Jerome Powell’s press conference.
  • On Thursday, July 29, the initial 2Q’21 US GDP report is due out alongside weekly jobless claims, while June US pending home sales will be released shortly after the US cash equity open.
  • On Friday, July 30, the June US PCE price index – the Fed’s preferred gauge of inflation – as well as June US personal income and personal spending data are due.
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