The US dollar ended the previous trading week relatively soft as markets were digesting the news that the United States decided to implement tariffs on Chinese goods. The developments in the trade negotiations between the world’s two biggest economies are likely to affect the greenback during the current trading week, though US macroeconomic data can have its impact as well.
It seemed that the USA and China were close to reaching a trade deal, but then US President Donald Trump dropped a bomb, announcing an increase of tariffs from 10% to 25% on $200 billion worth of Chinese goods. And that was not an idle threat either as coming Friday the new tariffs came into effect. And while markets had a surprisingly calm reaction to the news, that does not mean that new developments in the situation cannot have a big impact in the future. Therefore, traders will monitor news about the trade negotiations closely during the week.
As for US macroeconomic indicators, there will be no major releases until Wednesday, and even then there will not be many important reports. Market analysts are focusing there attention mostly on retail sales. While the indicator surged 1.6% in March, economists expect that the report will show a much smaller increase by just 0.2% for April. As for other reports, the Philadelphia Fed manufacturing index is expected to rise from 8.5 to 10.0 in May, while the preliminary estimate of the Michigan Sentiment Index is expected to show an increase from 97.2 to 97.8 this month.
It is also important to remember that members of the Federal Open Market Committee will be delivering speeches every single day of the week. The dollar will likely react to their tone. The currency is most certainly going to plunge if the FOMC members demonstrate dovish bias. But a more neutral tone can actually bolster the greenback.
Market analysts had no clear expectations for the US dollar as there are too many uncertain elements affecting the currency. Therefore, DailyFX issued a neutral forecast for the greenback. Forex Crunch was also neutral in its forecast for the dollar against other majors, though bullish versus commodity currencies.
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