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Weekly Fundamental US Dollar Forecast: Mr. Powell Goes to Washington

Fundamental Forecast for the US Dollar: Neutral

  • The main event of the week will be Fed Chair Jerome Powell heading to Capitol Hill for two days of testimony to deliver the semi-annual Monetary Policy Report.
  • But traders shouldn’t sleep on the US economic calendar. The upcoming January durable goods orders and PCE/Core PCE price indexes may further enflame inflation fears, sparking more gains by US yields.
  • The IG Client Sentiment Index[1]suggests the US Dollar[2] has a mixed bias heading into the last week of February.

US Dollar Lower as Inflation Expectations, Yields Rise

The US Dollar (via the DXY Index) turned lower at the end of the week, kneecapping the nascent rally through the pandemic downtrend (March and November 2020 highs). US economic data has been outperforming, leading to a rise in both US nominal yields (Treasuries) and inflation expectations (breakevens), but with latter rising faster than the former, US real yields have come back down. Notably, EUR/USD[3] finished the week above 1.2100 again, while GBP/USD[4] closed right at 1.4000 for the first time since mid-April 2018.

US Economic Calendar Loaded with Risk

The last week of February brings a bonafide cornucopia of event risk for the US Dollar. The main event of the week will be Fed Chair Jerome Powell heading to Capitol Hill for two days of testimony to deliver the semi-annual Monetary Policy Report (which we discuss in greater detail below).

But the economic calendar itself is supersaturated with event risk otherwise, likely giving traders plenty of opportunities to catch bouts of volatility in USD[5]-pairs over the coming days:

  • On Monday, February 22, Federal Reserve Board Governor Michelle Bowman will deliver a speech.
  • On Tuesday, February 23,

Read more from our friends at Daily FX