US DOLLAR FUNDAMENTAL FORECAST: BULLISH
- US Dollar[1] stumbles as ISM, durable goods data boost Fed rate cut bets
- Incoming GDP revision, PCE data may drive further dovish adjustment
- USD[2] may regain haven bid on US-China trade war, EU instability fears
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The US Dollar finished last week on the defensive despite having touched a five-month high. What began as a supportive risk-off turn in market sentiment against the backdrop of US-China trade war escalation turned against the currency in the final 48 hours of trade.
Disappointing PMI[4] and durable goods orders data appeared responsible. They compounded the drive toward de-risking but nevertheless pushed the Greenback lower as Fed rate cut bets firmed. The priced-in probability of a reduction by year-end implied in Fed Funds futures rose to a commanding 78.5 percent.
US GDP UPDATE, PCE INFLATION DATA MAY FEED RATE CUT SPECULATION
This puts the spotlight on a revised set of first-quarter GDP figures in the week ahead. Economists expect a slight downgrade, from 3.2 to 3.1 percent on the annualized growth rate. Leading data suggest performance deteriorated toward the quarter’s end, warning that a larger downward adjustment may be due.
Coming on the heels of the GDP release, the Fed’s favored PCE inflation gauge is projected to put core price growth at 1.6 percent on-year, matching a 19-month low. Survey data warns of disappointment here as well, which might spur still greater confidence in the
