US DOLLAR FORECAST: NEUTRAL
- US Dollar[1] impressively resilient despite increasingly dovish Fed
- Markets may be ready to consider why policy easing approaches
- Defensive repositioning might boost haven US Dollar demand
See the latest US Dollar technical and fundamental forecast[2] to find out what will drive prices in Q3!
Financial markets were treated to about as dovish of a Federal Reserve as they could hope for last week. Comments from Chair Powell in biannual Congressional testimony as well as the text of minutes from June’s meeting of the policy-setting FOMC[3] committee appeared to confirm that at least some easing is imminent. The US Dollar dutifully fell alongside bond yields.
US DOLLAR RESILIENT DESPITE INCREASINGLY DOVISH FED
The magnitude of the move was tellingly modest however. The Greenback edged down toward the middle of the range it has traced out since late May against a basket of its major counterparts (Euro, Yen, Pound[4] and Aussie Dollar), but nothing more. In fact, the overall uptrend from late-February lows remains conspicuously intact. That’s quite impressive since markets now favor three 25bps rate cuts before year-end.
An obvious question follows: how much more room does USD[5] have to fall? Indeed, it is possible that markets have priced in about as much stimulus as could be reasonably expected, and probably more. Three cuts along with the unwind of the QT balance sheet reduction effort – all before the calendar turns to 2020 – amounts to a lot of accommodation in a hurry. There may not be scope to
