US Dollar Forecast: Major events moving currencies

Browsing: US Dollar Forecast

By Yohay Elam on Feb 18, 2019

The greenback continued gaining ground despite an improving sentiment. What’s next? The Fed returns to the limelight with the meeting minutes, among other events. Here the highlights for the next week.

UK jobs report Tuesday, 9:30. Despite Brexit uncertainty, the labor market is thriving. The unemployment rate stood at a low of 4% in November while annual wage growth accelerated to 3.4%, better than had been expected. The data for December is due now. The Claimant Count Change for December rose by 20.8K. We will now receive the figures for January.
US FOMC Meeting Minutes: Wednesday, 19:00. The Federal Reserve decided to leave interest rates in late January and also made a significant policy shift to “patience” instead of the bias to raise interest rates. The Fed also opened the door to changing the balance sheet reduction program. The minutes from that meeting will shed more light on how worried Chair Jerome Powell and his colleagues are worried about the economic situation, in the US and abroad. Comments on the depth of the discussion on the balance sheet will impact stocks and comments on inflation will likely be of higher interest to the greenback.
Australian jobs report: Thursday, 00:30. Australia’s jobs reports beat expectations in the past three reports, with an increase of 21.6K positions in December. The unemployment rate dropped to 5%, also an encouraging development. We will now receive the figures for January.
Euro-zone PMIs: Thursday morning: 8:15 for France, 8:30 for Germany, and 9:00 for all the euro-zone. Purchasing managers’ indices are forward-looking surveys and have become more important of late as concerns about a recession grow. The data PMI data may provide an early warning sign. Back in January, France had a Manufacturing PMI at 51.2 points, barely above the 50-point threshold that separates expansion from contraction. The services sector is already contracting according to Markit’s measure: 47.8 points. Germany had the opposite picture: contraction in manufacturing with 49.7 and expansion in services: 53. The euro-zone manufacturing PMI stood at 50.5 while the services PMI was 51.2.
US durable goods orders: Thursday, 13:30. The data have been delayed due to the government shutdown. Headline sales rose by 0.8% in November and an increase of the same scale is due for December. Core orders, which carry more weight, are projected to rise by 0.2% after a slide of 0.3% beforehand.
US existing home sales: Thursday, 15:00. The US housing sector is showing signs of slowing down. The annualized number of sales dropped to 4.99 million in December, extending the slump. The data for January is due now.

*All times are GMT

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USD and forex general characteristics

The United States Dollar is the reserve currency of the world, partly due to its use in settling oil prices and other commodities. Foreign exchange pairs are divided into majors, minors, and crosses. Both majors and minors include the USD.

US economic indicators and political developments influence currencies more than anywhere else in the world. The decisions and statements by Federal Reserve officials make the biggest waves. The US economy is by far the largest in the world. US politics and policy also have an outsized impact on currencies.

The outlook consists of mostly US economic events but also key market-moving figures from other major economies. The euro-zone, the UK, and Japan stand out.

Recent USD Moves

The greenback suffered a bad start to the year: poor growth and scandals hurt the US dollar. Hopes for fiscal stimulus faded with the repeated failures to repeal Obamacare. Despite two rate hikes in the first half, the dollar struggled. Other economies outperformed America.

The second half already looks a lot different: economic growth reached 3% annualized and the Fed seems to stick to its plan to hike rates three times. In addition, Trump’s tax plan inspires markets, despite hurdles to pass it before Christmas.

Headwinds come from the political scandals. Low inflation also weighs on the dollar. If the “mystery” persists and wages do not accelerate, Janet Yellen and co. could refrain from further tightening. The new Fed Chair Jerome Powell will take office in February 2018, and he may not stick to the current plan of raising rates three times.