US DOLLAR FUNDAMENTAL FORECAST: BULLISH
- US Dollar may gain on Fed meeting minutes, Jackson Hole symposium
- Commentary and outlook may spook markets, boost demand for liquidity
- Are investors once again overly optimistic on prospect of Fed rate cuts?
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The US Dollar may rise next week if the publication of Fed meeting minutes along with commentary from the Jackson Hole symposium spook markets and drive demand for liquidity. The anti-risk Greenback may also capitalize on market-wide premonitions of an incoming recession as bond yields dive into negative territory and equities continue to show greater fragility against the backdrop of unstable geopolitics.
The headline risk will likely be the publication of Fed meeting minutes. Despite the most recent FOMC decision to cut rates by 25 basis points, the US Dollar emerged triumphant at the expense of equity markets. This is because Fed Chairman Jerome Powell’s commentary was less dovish than what markets had anticipated, which led to the fear that there may not be an abundance of rate cuts down the line.
US Dollar Continues to Climb Despite Mounting Fed Rate Cut Expectations
US Dollar charted created using TradingView
It is likely that the Fed meeting minutes will provide a more nuanced view of this and may cause investors to flock to the US Dollar. Strength in the Greenback may also be amplified by the Jackson Hole symposium if the outlook from officials spooks markets and drives demand for anti-risk assets. In times of uncertainty, a premium is placed on liquidity, and in this regard, the US Dollar reigns supreme.
Furthermore, if US-China trade relations worsen it could also have a similar effect and push the Greenback higher against its major counterparts. US President Donald Trump has also recently expressed discontent with the current state trade relations with the EU, raising the possibility that he might be more inclined to levy an auto tariff against a key ally and start a cross-Atlantic trade war.
US-China Trade War Pushing Equities Lower, USD Higher
S&P 500 chart created using TradingView
US DOLLAR TRADING RESOURCES
— Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter