US Dollar Forecast: Major events moving currencies

Browsing: US Dollar Forecast

By Yohay Elam on Oct 20, 2018

Currencies wobbled in a week that saw a failed EU Summit on Brexit and mixed economic data from the US. What’s next? A first look at Q3 GDP in the US, and rate hikes from the ECB and the BOC stand out. Here the highlights for the next week.

US retail sales disappointed with an unexpected drop while JOLTs job openings showed another record high. No breakthrough was reached in the EU Summit on Brexit and the clock is ticking. This put pressure on the pound and also a bit on the euro.

Updates:

Canadian rate decision: Wednesday 14:00, press conference at 15:15. The Bank of Canada is set to raise interest rates from 1.50% to 1.75%. The Ottawa-based institution provided thick hints about the move in recent public appearances by officials and the recent BOC Business Outlook Survey was upbeat. Moreover, the positie conclusion of the new trade deal lifts a significant cloud of uncertainty from the Canadian economy. This October rate decision also consists of new forecasts and a press conference by BOC Governor Stephen Poloz and Deputy Carolyn Wilkins. Markets will pay close attention to their words as well. The BOC has been relatively upbeat in previous decisions.
Euro-zone rate decision: Thursday, 11:45, press conference at 12:30. The European Central Bank reduced the pac of its bond-buying scheme this month, and now purchases only 15 billion euros every month, en route to ending the program by the end of the year. However, there are some signs of a slowodn and core inflation dropped below 1% once again. The Bank is unlikely to make any policy announcements at this meeting, which does not consist of new forecasts. However, markets will scrutinize every word that comes out of President Mario Draghi’s mouth. In the previous meeting, Draghi was relatively upbet. He may change his tone now.
US Durable goods orders: Thursday, 12:30. Orders of durable goods represent investment and feed into GDP. This publication for September will shape expectations for GDP published on the following day. Orders of durable goods jumped up 4.4% in August according to the final figures. However, the figure is quite volatile. Core orders, which are more important, remained flat back then.
US GDP: Friday, 12:30. The US economy grew by an annualized pace of no less than 4.2% in the second quarter of the year, according to the final figure. We will now get the first estimate for Q3, which is projected to be somewhat weaker, but still above the “new normal” levels of 2-2.5%. The first publication tends to have the most robust impact.

*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.