US dollar key forecast: neutral
- FOMC week sees US dollar loses its luster as the Fed folds restrictions
- The eventful week ended with better / worse than expected PCE printing
- Next may be Friday’s U.S. non-farm payroll USD event manager
The US dollar was hit after last week’s federal reserve interest rate decision. Federal Reserve Chairman Jerome Powell hid the perceived deplorable undertone, arguing that long-term inflation expectations and indicators appear to be in line with the central bank’s long-term target of 2%. The markets took the tongue calmly, risking tilting stocks and other risky assets to the detriment of the US dollar.
Some saw the sharp rise in prices as a possible signal that the central bank intended to be more inclined to approach and perhaps set a timetable or admit discussions on reducing the balance sheet. Inflationary measures, as well as short-term expectations, have risen in the wake of the economic recovery. This brought the US DXY index to a fresh high of several months before the July interest rate decision.
The Greenback DXY index remained lower the following week after the June PCE figures, which exceeded the wires on Friday. The main PCE index, which removes volatile food and energy prices, surpassed the wires by 3.5%, without the expected figures of 3.7% and 3.4% in May. Although this will temporarily stay away from the temporary narrative, as prices will remain well above the 2% target, the next FOMC meeting is not until the end of September.
This is likely to leave the calculation of political expectations largely unchanged and traders will instead wait for other high-impact events beyond that. This means that Friday’s July non-farm payroll report is the next potentially eventful economic publication. Analysts expect that figure to exceed wires at 925k, up from 850k in June. Better-than-expected printing could boost energy for the US dollar again.
US dollar and PCE price index
US dollar trading resources
– Written by Thomas Westwater, DailyFX.com analyst
Be in touch Thomas, use the comments section or below @FxWestwaterTwitter