Weekly Fundamental US Dollar Forecast: Will Inflation Propel US Dollar After The Strong July NFP?

Weekly Fundamental US Dollar Forecast: Will Inflation Propel US Dollar after the Strong July NFP?

Fundamental Forecast for the US Dollar: Neutral

  • The US dollar (via the DXY Index) has rallied after the July US nonfarm payrolls report on the back of elevated US Treasury yields and a jump in Fed rate hike odds.
  • Another hot inflation report is expected, and rates markets are starting to move in a manner suggesting that a more hawkish Fed could be on the horizon; however, any upcoming change in policy will be limited to tapering asset purchases.
  • According to the IG Client Sentiment Index, the US dollar has a mixed bias heading into the second week of August.

US Dollar Back Up

The US dollar (via the DXY Index) rallied after the July US nonfarm payrolls report on the back of elevated US Treasury yields and a jump in Fed rate hike odds. EUR/USD rates depreciated by -0.92% while USD/JPY rates added +0.47%. Even GBP/USD rates, which have been resilient of late, eased back by -0.28%. The question heading into the next week is simple: will the July US inflation report (CPI) help bolster the US dollar’s rally?

Unlike around the June US inflation report (CPI), there is a greater chance that hot inflation readings spill into higher US Treasury yields – even though most Federal Reserve officials suggest that inflation is “largely transitory.” In a sense, this time is different: more evidence that high inflation is persisting could help US Treasury yields sustain their elevation, and thus, the US dollar’s recent ascent.

US Economic Calendar Quiet then Loud

The progression towards the middle part of August will see a meaningful docket of event risk based out of the US. But the calendar is backloaded: neither Monday nor Tuesday will bring forth any truly important data releases; while Wednesday through Friday will contain all of the event risk.

  • On Wednesday, Aug. 11, the July US inflation report (CPI) will be released, with elevated inflation rates expected to persist. Also on Tuesday, the US federal government’s monthly budget statement for July is set for publication.
  • On Thursday, Aug. 12, weekly jobless claims figures are due, while the July US producer price index (PPI) – the cost of goods at ‘the factory gate’ – is due.
  • On Friday, Aug. 13, the preliminary August US Michigan consumer sentiment survey is expected. Within the report will be the latest update to consumer inflation expectations.
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For full US economic data forecasts, view the DailyFX economic calendar.

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