Weekly Fundamental US Dollar Forecast: Mr. Powell Goes To Washington

Weekly Fundamental US Dollar Forecast: Mr. Powell Goes to Washington

Fundamental Forecast for the US Dollar: Neutral

  • The main event of the week will be Fed Chair Jerome Powell heading to Capitol Hill for two days of testimony to deliver the semi-annual Monetary Policy Report.
  • But traders shouldn’t sleep on the US economic calendar. The upcoming January durable goods orders and PCE/Core PCE price indexes may further inflame inflation fears, sparking more gains by US yields.
  • The IG Client Sentiment Index suggests that the US Dollar has a mixed bias heading into the last week of February.

US Dollar Lower as Inflation Expectations, Yields Rise

The US Dollar (via the DXY Index) turned lower at the end of the week, kneecapping the nascent rally through the pandemic downtrend (March and November 2020 highs).

US economic data has been outperforming, leading to a rise in both US nominal yields (Treasuries) and inflation expectations (breakevens); but with the latter rising faster than the former, US real yields have come back down. Notably, EUR/USD finished the week above 1.2100 again, while GBP/USD closed right at 1.4000 for the first time since mid-April 2018.

US Economic Calendar Loaded With Risk

The last week of February brings a bonafide cornucopia of event risk for the US Dollar. The main event of the week will be Fed Chair Jerome Powell heading to Capitol Hill for two days of testimony to deliver the semi-annual Monetary Policy Report (which we discuss in greater detail below).

But the economic calendar itself is supersaturated with event risk otherwise, likely giving traders plenty of opportunities to catch bouts of volatility in USD-pairs over the coming days:

  • On Monday, Feb. 22, Federal Reserve Board Governor Michelle Bowman will deliver a speech.
  • On Tuesday, Feb. 23, the December US house price index will be released, as will the February US consumer confidence report. Additionally, day one of the Humphrey-Hawkins testimony will begin.
  • On Wednesday, Feb. 24, January US new home sales data will be released. The Fed’s Brainard and Clarida will both give speeches. Additionally, day two of the Humphrey-Hawkins testimony will wrap up.
  • On Thursday, Feb. 25, January US durable goods orders will be released, which could surprise to the upside in a similar fashion to the January US retail sales report. The second release of the 4Q’20 US GDP report is due, as is the weekly US jobless claims report. Later in the day, January US pending home sales will be released. The Fed’s Quarles and Williams will both give speeches.
  • On Friday, Feb. 26, January US PCE and Core PCE data will be released, as will January US personal income and spending data. The January US good trade balance is due, as is the final February US Michigan consumer sentiment report. Finally, the US budget plan for fiscal year 2022 will be released to cap off the week.
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For full US economic data forecasts, view the DailyFX economic calendar.

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