US Dollar Forecast: Major events moving currencies

Browsing: US Dollar Forecast

By Yohay Elam on Oct 18, 2019

After a week that saw Brexit drama but calms around trade, the focus shifts to the old continent. What will Mario Draghi do in his last rate decision? Here the highlights for the upcoming week.

White smoke from Brussels – a Brexit deal has been agreed upon. The pound extended its gains and hit the highest in five months, despite the fact that the Northern Irish Democratic Unionist Party (DUP) rejects it. Markets were swept higher by the news. The onus is now on parliament to approve it. Elsewhere, disappointing US retail sales weighed on the dollar and the slowdown in the Chinese economy caused some concern.

UK Parliament votes on Brexit: Saturday. After the UK and the EU reached an accord, it is time for parliament to have its verdict. At the time of writing, Prime Minister Boris Johnson is working hard to muster a majority that his predecessor Theresa May failed to get three times. The tally is tight. If it passes, the pound could leap, carrying the euro, commodity currencies and also USD/JPY higher. It would remove substantial certainty. A failure would open the door to elections, but also to a hard Brexit, a mirror image of the currency movements described above.
Elections in Canada: Monday, results due early on Tuesday. Incumbent Prime Minister Justin Trudeau seeks a second term at the helm and faces a close battle with Conservative leader Andrew Scheer. Markets will probably be content if either leader achieves a majority in the 338-seat parliament. The Canadian dollar may struggle if neither party wins a majority and Trudeau’s Liberals for a government with the left-leaning New Democratic Party (NDP).
US Existing Home Sales: Tuesday, 14:00. Most transactions in the housing market are of existing, second-hand homes. The annualized volume of sales advanced in August to 5.49 million. Another rise may be seen in the figures for September. The situation has improved.
Euro-zone PMIs: Thursday, 7:15 for France, 7:30 for Germany, and 8:00 for the whole euro-zone. Markit’s forward-looking Purchasing Managers’ Indexes (PMIs) have been falling, raising fears of an outright recession. Germany’s all-important manufacturing sector has been hardest hit, with a drop to 41.4 points in September – well below the 50-point threshold separating expansion and contraction. The greater fear is that the industrial sector drags services down with it. The all-European manufacturing PMI hit 45.6 in September while services fell to 52. A further fall will show that the economic malaise spread into the fourth quarter.
ECB rate decision: Thursday, 11:45, press conference at 12:30. The European Central Bank will likely leave its policy unchanged at President Mario Draghi’s last meeting. Back in September, he presided over a controversial decision to cut rates and also restart the Quantitative Easing (QE) program Bond-buying, at a volume of €20 billion per month, will kick off on November 1, the day that Christine Lagarde takes over. This last meeting in October will probably be dedicated to defending his legacy, stressing that he has always done “whatever it takes” to defend the common currency. Updated assessments of the economy – especially after the PMIs – will be of interest.
US Durable Goods Orders: Thursday, 12:30. Investment has been one of the economy’s weaker spots and the data for September will provide critical input for Gross Domestic Product (GDP) in the third quarter. Both headline orders and core ones advanced in August – a relief after months of figures that were unimpressive. A drop may be seen now.
US New Home Sales: Thursday, 14:00. While most sales are of existing homes, those of new ones trigger more economic activity. August saw a leap in the volume of annualized sales – 713,000. A drop may be recorded in the report for September.
German Ifo Business Climate: Friday, 8:00. The No. 1 Thinktank in the continent’s largest economy has recently shown a minor uptick in sentiment after several months of downfalls. The 7,000-strong survey may remain at a similar score to 94.6 seen in September.

*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.