Weekly Fundamental US Dollar Forecast: Inflation Fears Linger; May US NFP Due Friday

For now, without a corresponding rise in US Treasury yields, we’ve seen the start of a tantrumless taper, if you will. If you haven’t read the note, The Scary Fed Number Everyone is Talking About, you might be interested in doing so to get more context about where the Fed currently stands.

US Treasury Yield Curve (1-Year to 30-Year) (February 2020 to May 2021) (Chart 1)

Weekly Fundamental US Dollar Forecast: Inflation Fears Linger; May US NFP Due Friday

A lack of rise in US Treasury yields coupled with increasing inflation pressures throughout May, as measured by the 5- and 10-year breakeven rates, has dragged US real yields lower. Even with the nascent taper efforts starting to become more public, the Federal Reserve has been signaling quite strongly that it still believes the recent rise in inflation pressures is only transitory.

If rising near-term inflation expectations start to outpace gains in US Treasury yields, the US dollar is in trouble (especially considering the US dollar’s lack of rally when US real yields edged higher in the second half of the month). The economic calendar may hold the US dollar’s fate in the coming days.

US Economic Calendar Loaded with Risk

The first week of June brings the usual cornucopia of event risk for the US dollar. The economic calendar is supersaturated with event risk, likely giving traders plenty of opportunities to catch bouts of volatility in USD-pairs over the coming days after a quieter final few days of May heading into the long holiday weekend:

  • On Tuesday, June 1, the final May US manufacturing PMI will be released as will the May US ISM manufacturing index. April US construction spending data is due, and Fed Governor Brainard will speak later in the afternoon session. The Atlanta Fed GDPNow growth tracker for 2Q’21 will be updated for the first and only time during the week.
  • On Wednesday, June 2, weekly US mortgage applications data are due in the morning, while the afternoon will see the release of the Fed Beige Book, plus speeches from Atlanta Fed President Bostic and Chicago Fed President Evans.
  • On Thursday, June 3, the May US ADP employment change report will be released following the weekly US jobless claims figures. Later in the morning, the May US ISM non-manufacturing PMI index will be released. In the afternoon session, Atlanta Fed President Bostic and Fed Vice Chair Quarles will give speeches.
  • On Friday, June 4, Fed Chair Powell will speak first thing in the morning ahead of any data releases. May US nonfarm payrolls and the May US unemployment rate figures are due alongside May US wage growth figures. Later in the morning, May US factory orders figures will be released.
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For full US economic data forecasts, view the DailyFX economic calendar.

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