Fed's Policy Meeting to Determine DXY's Fate
US Dollar Playbook -May
DERBYSHIRE GB / APR 18 - This is the US Dollar Forex Playbook and contains analysis based on the US Dollar Forex Reference. It is intended to be used as a guide to aid in your analysis.
DXY Falls, Remaining Far Below 50 day Moving Average
Back in March, three U.S. banks failed due to a lack of investor confidence and liquidity. The banks were over-exposed to the volatile cryptocurrency markets and falling bond prices. The failures led to a shift in sentiment towards a potential dovish pivot by the Federal Reserve (Fed). The Fed is scheduled to meet this week on Wednesday. There will be no updated projections, so clues will be taken from the policy report and press conference.
A dovish pivot would mean that the Fed is less likely to raise interest rates or even cut rates. This would support a lower interest rate environment, which would in turn support a weaker U.S. dollar. The DXY, a basket of currencies that is used to measure the value of the U.S. dollar, lost value in April, falling by 1.0 percent.
March Economic Data: A Mixed Bag
The economic data released last month in April was a mixed bag. On the one hand, inflation came in better than expected, at 5 percent. This was good news for consumers and businesses, as it meant that their purchasing power was not being eroded as quickly by rising prices. On the other hand, GDP growth came in at 1.1 percent which was much worse and almost half less than the 2 percent expected. This suggests that the economy is perhaps not doing as well as perceived.
Everyone is Watching the Fed
The Fed is widely expected to raise interest rates by 25 basis points this week although the futures market has a 15 percent chance of a cut as soon as July. This increases to 40 percent odds of a cut at the September meeting which indicates further weakness ahead for the US dollar.
The DXY is expected to remain below 103 unless the Fed strikes an overly hawkish tone. A dovish tone could push the DXY below 101.
Upcoming Events
Wednesday, May 3rd US Federal Funds Rate
5.25% expected; 5.00% previous
Friday, May 5th US Non-farm payrolls
tbc expected; 236K previous
Friday, May 5th US Unemployment Rate
3.6% expected; 3.5% previous
Friday, May 5th Treasury Currency Report
n/a
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