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US DOLLAR OUTLOOK: BULLISH

  • US Dollar[1] may rise on FOMC[2] rate decision, outlook if officials confirm data-dependent approach
  • Local retail sales and CPI statistics may magnify USD[3] gains if it bolsters Fed’s case to hold rates
  • However, fundamental risks including the UK election, US-China trade war risks could curb gains

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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 “materially” 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 USD’s gains.

FOMC Rate Decision, Fed Outlook 2020

Markets are overwhelmingly expecting for the Fed to hold rates at 1.75 percent. Therefore, the source of volatility will likely come from their outlook rather than the decision itself. Fed officials including Mr. Powell himself have praised the tight labor market and cited it as an example of strength underpinning the US economy. However, he did warn of alarming trends in CPI and manufacturing which could alter the outlook.

Prolonged uncertainty leads to slower growth, softer manufacturing

Softer manufacturing data has led to what some are calling an industrial recession in large part caused by the US-China trade war. A growing concern is weakness in manufacturing will spill over into the services sector which has remained relatively resilient. The disinflationary pressure from the trade spat is also a growing concern as it undermines price growth and pressures the Fed’s commitment to keep inflation at 2 percent.

US CPI YoY

Will US Economy Experience Recession?

The short answer appears to be “for now,

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