The US dollar performed very poorly last week despite the better-than-expected employment report. This week will have a couple important macroeconomic releases as well as a monetary policy meeting of the US central bank. Yet it is very likely that factors outside of the United States will have a bigger impact on the greenback.
The meeting of the Federal Open Market Committee will probably be the most important event in the USA during the week. Market participants expect neither a cut nor a hike as demonstrated by the CME FedWatch page that shows almost a 100% chance of interest rates staying unchanged. Experts consider a hike almost impossible in the current economic climate but a cut is also extremely unlikely unless macroeconomic indicators deteriorate significantly. And despite several underwhelming reports released last week, analysts think that the data was not nearly bad enough to consider lower rates. With no changes to monetary policy expected during this week’s meeting, traders will watch for the wording of the statement as well as the accompanying economic projections for hints about FOMC plans for the future. The so-called “dot plot”, which shows predictions of US policymakers for interest rates in the future, is especially important to the monetary policy outlook. The majority of analysts expect that the FOMC will maintain its neutral stance, signaling than chances for an interest rate cut in 2020 remain low. If it is indeed the case, that will likely give a boost to the dollar.
As for macroeconomic data, the most important reports during the week will be consumer inflation and retail sales. Analysts predict that the report released on Wednesday will show that both headline and underline inflation was at 0.2% in November versus 0.4% and 0.2% logged in October respectively. As for retail sales released on Friday, the median forecast also promises the same growth figure for both headline and underline indicators in November — 0.4%. That is compared with an increase of 0.2% and 0.3% in October respectively.
The US-China trade talks will continue to affect the currency markets, including the dollar. This week is the last before US tariffs on Chinese goods kick in on December 15 unless the world’s major powers will be able to reach some form of agreement. With US President Donald Trump content to wait for Chinese elections in 2020, chances for a deal do not look particularly high. Absence of agreement can hurt the greenback, though it also has a chance of boosting the appeal of the US dollar as a safe haven.
Usually, events in the United Kingdom do not have a noticeable impact on the dollar. But this week things may be different as the election on December 12 can determine whether Britain will face a hard Brexit. If market participants consider the outcome of the election to increase chances for a divorce from the European Union without a deal, it will certainly increase the safe-haven appeal of the greenback.
DailyFX released a bullish forecast for the US dollar, saying:
The US Dollar may rise following the FOMC rate decision and outlook if officials re-affirm their commitment to data-dependence. Fed Chairman Jerome Powell said the central bank is unlikely to cut rates unless economic conditions become âmateriallyâ worse. The release of CPI and retail sales data may also give the Greenback a boost if the statistics give the Fed impetus to hold rates, though external risks could curb USDâs gains.
Forex Crunch was neutral-to-bullish in its forecasts.
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