US DOLLAR FORECAST: NEUTRAL
- US Dollar[1] marches higher as markets trim FOMC[2] rate cut bets
- Market pricing may still be more dovish than the Fed endorses
- ISM, payrolls data unlikely to overshadow central bank impact
See the latest US Dollar technical and fundamental forecast[3] to find out what will drive prices in Q3!
The US Dollar marched steadily higher last week, tracking a shift away from dovish extremes on rate futures-implied Fed monetary policy expectations. The measured rise was only briefly interrupted by event-driven volatility – like the seesaw swings immediately after the ECB rate decision – but the conviction behind it never appeared to waver.
Pre-positioning ahead of next week’s fateful FOMC monetary policy announcement probably explains such purposeful recovery. The markets appeared to have run out of room to price in an ever-more accommodative Fed policy outcomes[4]. That made for asymmetrically high risk of a less dovish central bank than asset price levels presumed. Some portfolio rebalancing was apparently in order.
US DOLLAR SEEMS BIASED UPWARD AFTER FOMC RATE DECISION
As it stands, the markets put the probability of a 25bps rate cut at 83 percent, while the chance of a 50bps reduction is at 17 percent. Tellingly, that leaves no room for an on-hold scenario yet clearly leans in favor of the smaller adjustment. A survey of recent economic data as well as commentary from Fed officials seems to support just such a result.
This likely means that the announcement’s market-moving potential will come from the
