Dollar moving in tight range

13 June, 2017

Four major central banks are meeting this week: the Federal Reserve, Bank of England, the Swiss National Bank, and Bank of Japan. The Fed is the only central bank poised to hike rates for the second time this year; meanwhile, all other central banks will remain on a standstill.

Traders are expecting a 100% chance of a rate increase according to CME’s Fedwatch tool, so another 25-basis points hike seems a done deal, but whether the U.S. dollar moves higher or lower after the announcement on Wednesday depends on a couple of factors.

Economic Outlook

Despite unemployment rate falling to a 16-year low, U.S. job growth slowed in May and the gains in April and March were revised lower. However, the three-month average is still above 120,000  jobs which is sufficient to keep up with the working-age population growth, so not too much to worry about. Interestingly the tight labor market is still not accelerating wage growth, meaning the Fed will not be forced to tighten aggressively, and the long run U.S. yields are likely to remain under pressure. Consumer prices and retail sales are due to be released tomorrow before the announcement, and although it won’t affect the decision, these figures will impact the timing of the following rate hikes. The Fed’s quarterly projections on growth, unemployment, and inflation will be released along with the statement on Wednesday, so markets will closely monitor any changes in the projections.


The dots on the dot plot are unlikely to change much. The previous chart showed two more rate hikes in 2017, with nothing significant occurring to alter this view. We’ll be left deciphering Janet Yellen’s tone to determine whether a rate hike will be considered a dovish or hawkish hike. Another key element that’s expected to move the U.S. dollar is any signs of when and how the Fed will start reducing the $4.5 trillion balance sheet. Selling assets on its balance sheet will provide a much stronger signal than just choosing not to reinvest the proceeds of treasuries and mortgage-backed securities.

Although the Fed is the only major central bank tightening monetary policy, the Greenback had been in a downtrend since the beginning of the year and fell below post-election levels. This explains that monetary policy, although having substantial influence on currencies’ direction, is still one of many factors.  If in the long run U.S. treasuries remain under pressure, it means investors do not believe that inflation is returning, and more importantly, it’s a clear signal that market participants are growing more skeptical towards the reflation trade, hence keeping the U.S. dollar under pressure.

Source link  
Yuan firms on Dollar weakness

Global investors will likely remain on high alert throughout the end of the week to see if the largest market sell-off since early 2018 will...

EM currency weakness refuses to go away

Tuesday has seen stability in Chinese markets following a very nervous beginning to the new trading week yesterday. Signs of China market stability...

Yuan eases on risk-off sentiment

Financial markets have entered the new trading week on negative footing as a mixture of different market themes weigh on investor sentiment...

Risk assets under pressure from rates

Chinese equities took a big hit after traders returned from a week-long holiday. Efforts by the People's Bank of China to free more than $100 billion...

U.S. Treasury Yields boost the greenback

The U.S. Treasury selloff on Wednesday was the biggest story in the financial markets. This time it wasn't only the rate-sensitive two-year yields that marched higher...

NAFTA deal fails to lift global risk appetite

Global investors remained defensive on Tuesday despite the U.S. and Canada agreeing to a new trade deal ending months of uncertainty...

Dollar steady after Fed raises rates

In a widely expected move, the Federal Reserve has raised its key interest rate by 25 basis points for the third time this year. The central bank...

Markets prepare for Fed meeting

The resumption in concerns around trade uncertainties, the upcoming Federal Reserve policy meeting and general political risk element that...

Could the Dollar be turning the corner?

Currencies throughout Asia have welcomed the news that the Dollar has tumbled to a near 3-month low. A number of different currencies in the...

In the past 24 hours Bitcoin has lost -0.98% and reached $6541.061325. Open your trading account with the best cryptocurrency brokers on special terms today.

In the past 7 days the EUR/USD pair has gained 0.6352% and is now at $1.1587. Start trading and making money on Forex today.

In the past 7 days Ethereum has lost -7.74% and is now at $208.293409371. Have the most popular cryptocurrencies compared online 24/7.

Top Brokers offering Forex Market Analysis

Forex Currencies Forecasts

Top 10 Forex Brokers 2018

# Broker Review
6FIBO GroupFIBO Group84%