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USD turned dramatically higher against major and minor currencies after the shift in stance on inflation by the Fed. The fallout from the Federal Open Market Committee (FOMC) meeting has reset the financial markets on a grand scale.

With the majority of FOMC members now expecting there to be at least two increases in interest rates before the end of 2023 and talk of starting to rein back its $120 billion a month asset purchases, the impact across all markets has been immense if not immediate.

And as far as asset purchase tapering went, Fed Chairman Jerome Powell made a pretty big hint, remarking: “You can think of this meeting that we had as the ‘talking about talking about’ meeting, if you’d like.”

From forex to equities – risk-off is back

Initially the stock market was fairly measured but by the end of the week the reflation trade was looking like it was on its last legs, if not entirely dead.

The Dow was down 1.6% and the UK FTSE 100 1.9% – both underperforming other stock indices because of their preponderance of value stocks.

Bond markets at the shorter end of the curve reacted with yields rising on Wednesday’s shift in policy from the FOMC.

The restrained nature of the bond selling at first gave the impression there would be no repeat of the panic-selling in the so-called taper tantrum of 2013 – the last time when the Fed hinted at a more hawkish posture on monetary policy.

But that didn’t last and on Thursday the bond markets saw buyers return and yields fall back. The 10-year Treasury   the most closely watched because of its influence on borrowing costs globally – 6 basis points to 1.51%, while the 30-year dropped 10 basis point to 2.1%.

However, at the shorter-end of the curve, the two-year maintained the upward momentum in yields, up 1 basis point to 0.21%.

In the currency markets the reaction was at its most severe.

DXY makes its move

The dollar index (DXY) made two large upward moves on Wednesday and Thursday of 0.6% and 0.86% respectively. That, taken together, was the largest move of the greenback against the other major internationally traded currencies this year.

DXY price chart 18 June 2021

Both the euro and the pound lost ground to the dollar, but so too did a host of other countries’ currencies, notably in Asia.

Until this week the dollar had been weakening over the past 12 months, aside from some appreciation seen in March.

But the Fed’s definite move to indicate to markets that it was aware of inflation expectations rising and what this could be saying about an overheating economy, both at home and abroad.

The fact that the Fed has shifted from the assessment that the increase in inflation was transitory has signalled to the equities market that valuations are surely too rich, given the negative implications for future corporate earnings. Not surprisingly, then, US stocks has their worst week since November last year.

USD strengthens, commodities drop

Commodities have also taken a hit from the stronger dollar. Those commodities priced in the USD become more expensive. For now oil is immune, and its price continues to benefit from the prospect of Iranian oil being kept off the market as the prospect of nuclear talks leading to the lifting of sanctions dissipates.

It was a different story for metals such as copper however, which gave up a lot of their most most recent gains. The decision of the Chinese government to release some of its strategic reserves in an attempt to put a lid on metal price inflation added to bearishness in commodity market.

But back with currencies, the most significant repercussions could be for the carry trade between emerging market currencies in the Far East and the dollar. The appreciation in the dollar squeezes the profit opportunities as the spread between the interest rates of, for example, the Korean Won (KRW) and the US dollar narrows.

KRW snapped a five-day winning run to see its biggest fall against the dollar since February. The Chinese Renminbi also dropped. The Japanese Yen was an exception, benefiting from its safe haven status.

With no major economic calendar events in the US, market participants will be on Fed watch.

Bullard sees interest rate rise earlier –   2022

On Friday St. Louis Federal Reserve President James Bullard told CNBC the economy was in a good place, but that came with a caveat.

“We’re expecting a good year, a good reopening. But this is a bigger year than we were expecting, more inflation than we were expecting. I think it’s natural that we’ve tilted a little bit more hawkish here to contain inflationary pressures.”

Bullard went on to explain that he expects inflation to be 3% this year and falling to 2.5% in 2022 before it returns to the Fed’s 2% target. The Fed had previously said that it would be relaxed about inflation remaining above the target level, provided it wasn’t for an extended period.

Bullard added, though, that with inflation above target he thinks there should be an interest rate increase as early as next year.

Bullard is not currently a voting member of the FOMC, but he is next year.

It was only in March that the FOMC had said inflation would run at 2.2% this year – it has now revised that upwards to 3.0%.

The economy is also hotter than it had previously expected. It now expects the GDP to be 7.0%, not the 6.5% it pencilled a month ago. In December the FOMC though had GDP would be 4.2% this year.

If you are looking to profit from forex markets, then look out for our free forex signals next week.

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Forex Week Ahead 21 June to 25 June – Economic Calendar

Check out our live calendar page here

MONDAY, JUN 21

Consensus Previous

00:01

GBP

Rightmove House Price Index (MoM) (Jun) 1.8%

00:01

GBP

Rightmove House Price Index (YoY) (Jun) 2.1%

02:30

AUD

Retail Sales s.a. (MoM) (May)Preliminar 0.7% 1.1%

02:30

CNY

PBoC Interest Rate Decision 3.85%

24h

ARS

Martin Miguel de Guemes day

08:00

EUR

Industrial Production (YoY) (Apr) 12.7%

09:00

PLN

Industrial Output (YoY) (May) 29.0% 44.5%

09:00

PLN

Producer Price Index (YoY) (May) 6.0% 5.3%

09:00

CZK

Foreign Debt (Q1)

163.88B

10:00

EUR

Consumer Confidence Index (Jun) 4

n/a

EUR

German Buba Monthly Report

n/a

INR

Trade Deficit – RBI (Q1)

-34.5B

n/a

INR

M3 Money Supply (May 31) 10.0% 9.9%

n/a

INR

Balance Payment $ (Q1)

$32.5B

n/a

INR

Current Account Balance $ (Q1)

$-1.7B

13:30

EUR

ECB’s President Lagarde speech

13:30

USD

Chicago Fed National Activity Index (May) 0.24

13:30

BRL

Current Account (May)

$5.663B

14:00

EUR

Leading Indicator (Jun) 6.5

15:00

EUR

ECB’s President Lagarde speech

16:30

USD

3-Month Bill Auction 0.025%

16:30

USD

6-Month Bill Auction 0.04%

20:00

USD

Fed’s Williams speech

22:00

KRW

Producer Price Index Growth (MoM) (May) 0.2% 0.6%

22:00

KRW

Producer Price Index Growth (YoY) (May) 6.0% 5.6%

22:00

NZD

Westpac Consumer Survey (Q2) 99.5 105.2

TUESDAY, JUN 22

04:00

NZD

Credit Card Spending (YoY) (May) 70.2% 87.4%

n/a

EUR

Consumer Spending Volume (Apr) -0.4%

n/a

EUR

Consumer Confidence Adj (Jun) -9

06:00

EUR

Unemployment Rate (Mar) 7.6%

07:00

DKK

Consumer Confidence (Jun) 2.8

07:00

GBP

Public Sector Net Borrowing (May)

£30.962B

08:00

TRY

Consumer Confidence (Jun) 77.3

08:30

SEK

Unemployment Rate (May) 9.4%

09:00

PLN

Retail Sales (YoY) (May) 16.0% 25.7%

09:00

EUR

Industrial Sales n.s.a. (YoY) (Apr) 25.8% 38.1%

09:00

EUR

Industrial Sales s.a. (MoM) (Apr) 1.3% 1.6%

09:30

HKD

Consumer Price Index (May) 0.6% 0.7%

n/a

EUR

Current Account Balance (Apr)

€-0.473B

13:00

HUF

MNB Interest Rate Decision 0.85% 0.60%

13:55

USD

Redbook Index (YoY) (Jun 18) 16.4%

15:00

USD

Existing Home Sales (MoM) (May)

5.71M

5.85M

15:00

USD

Existing Home Sales Change (MoM) (May) -2.7%

15:00

EUR

ECB’s Lane speech

15:00

EUR

Consumer Confidence (Jun)Preliminar -2.9 -5.1

15:00

USD

Richmond Fed Manufacturing Index (Jun) 18

16:00

COP

Trade Balance (Apr)

$-1.298M

18:00

USD

2-Year Note Auction 0.152%

18:30

EUR

ECB’s Schnabel speech

19:00

USD

Fed’s Chair Powell testifies

21:30

USD

API Weekly Crude Oil Stock (Jun 18)

-8.537M

WEDNESDAY, JUN 23

00:00

AUD

Commonwealth Bank Composite PMI (Jun)Preliminar 58

00:00

AUD

Commonwealth Bank Manufacturing PMI (Jun)Preliminar 60.4 60.4

00:00

AUD

Commonwealth Bank Services PMI (Jun)Preliminar 58.3 58.0

00:50

JPY

BoJ Monetary Policy Meeting Minutes

01:30

JPY

Jibun Bank Manufacturing PMI (Jun)Preliminar 53

06:00

SGD

Consumer Price Index (YoY) (May) 2.0 2.1

06:00

JPY

Leading Economic Index (Apr) 103 103

06:00

JPY

Coincident Index (Apr) 95.5 95.5

08:00

EUR

Non-Monetary Policy ECB Meeting

08:15

EUR

Markit Manufacturing PMI (Jun)Preliminar 59.0 59.4

08:15

EUR

Markit Services PMI (Jun)Preliminar 59.4 56.6

08:15

EUR

Markit PMI Composite (Jun)Preliminar 59.3 57.0

08:30

EUR

Markit Manufacturing PMI (Jun)Preliminar 63.0 64.4

08:30

EUR

Markit PMI Composite (Jun)Preliminar 57.4 56.2

08:30

EUR

Markit Services PMI (Jun)Preliminar 55.5 52.8

08:30

EUR

ECB’s De Guindos speech

09:00

ZAR

Consumer Price Index (MoM) (May) 0.1% 0.7%

09:00

ZAR

Consumer Price Index (YoY) (May) 5.2% 4.4%

09:00

EUR

Markit PMI Composite (Jun)Preliminar 58.7 57.1

09:00

EUR

Markit Manufacturing PMI (Jun)Preliminar 62.1 63.1

09:00

EUR

Markit Services PMI (Jun)Preliminar 57.6 55.2

09:30

GBP

Markit Services PMI (Jun)Preliminar 63.0 62.9

09:30

GBP

Markit Manufacturing PMI (Jun)Preliminar 64.0 65.6

12:00

MXN

Retail Sales (MoM) (Apr) 3.6%

12:00

MXN

Retail Sales (YoY) (Apr) 2.5%

12:00

USD

MBA Mortgage Applications (Jun 18) 4.2%

13:30

USD

Current Account (Q1)

$-189.9B

$-188.5B

13:30

CZK

CNB Interest Rate Decision 0.50% 0.25%

13:30

CAD

Retail Sales ex Autos (MoM) (Apr) 2.2% 4.3%

13:30

CAD

Retail Sales (MoM) (Apr) -5.1% 3.6%

14:00

CHF

SNB Quarterly Bulletin (Q2)

14:10

USD

Fed’s Bowman speech

14:45

USD

Markit Manufacturing PMI (Jun)Preliminar 61.5 62.1

14:45

USD

Markit Services PMI (Jun)Preliminar 70.0 70.4

14:45

USD

Markit PMI Composite (Jun)Preliminar 68.7

15:00

USD

New Home Sales (MoM) (May)

0.870M

0.863M

15:00

USD

New Home Sales Change (MoM) (May) -5.9%

15:30

USD

EIA Crude Oil Stocks Change (Jun 18)

-7.355M

17:00

RUB

Industrial Output (May) 10.5% 7.2%

18:00

USD

5-Year Note Auction 0.788%

19:00

EUR

ECB’s President Lagarde speech

n/a

ARS

Gross Domestic Product (YoY) (Q1) -4.3%

21:30

USD

Fed’s Rosengren speech

22:00

KRW

Consumer Sentiment Index (Jun) 103.6 105.2

THURSDAY, JUN 24

00:50

JPY

Corporate Service Price Index (YoY) (May) 0.9% 1.0%

00:50

JPY

Foreign Investment in Japan Stocks (Jun 18)

¥-33.2B

00:50

JPY

Foreign Bond Investment (Jun 18)

¥410.6B

24h

EUR

European Council Meeting

06:00

EUR

Producer Price Index (YoY) (May) 8.7%

24h

EUR

Export Prices (YoY) (May) 9.4%

06:00

EUR

Import Prices (YoY) (May) 12%

n/a

EUR

Gross Domestic Product n.s.a (YoY) (Q1) -2.8%

n/a

EUR

Gross Domestic Product s.a (QoQ) (Q1) -0.5% -0.5%

07:00

EUR

Import Price Index (MoM) (May) 1.4%

07:00

EUR

Import Price Index (YoY) (May) 11.3% 10.3%

07:30

HUF

Current Account Balance (QoQ) (Q1) 0.184

07:45

JPY

BoJ’s Governor Kuroda speech

07:45

EUR

Business Climate in Manufacturing (Jun) 107

08:00

TRY

Capacity Utilization (Jun) 75.3%

08:00

TRY

Manufacturing Confidence (Jun) 110.3

08:00

EUR

Gross Domestic Product (YoY) (Q1) -9.1% -4.3%

08:00

EUR

Gross Domestic Product (QoQ) (Q1) -0.5% -0.5%

08:30

SEK

Producer Price Index (MoM) (May) 1.7%

08:30

SEK

Producer Price Index (YoY) (May) 5.6%

09:00

PLN

Unemployment (MoM) (May) 6.1% 6.3%

09:00

EUR

IFO – Business Climate (Jun) 100.4 99.2

09:00

EUR

IFO – Expectations (Jun) 103.5 102.9

09:00

EUR

IFO – Current Assessment (Jun) 97.8 95.7

09:00

EUR

Economic Bulletin

10:30

ZAR

Producer Price Index (MoM) (May) 0.3% 0.7%

10:30

ZAR

Producer Price Index (YoY) (May) 7.3% 6.7%

12:00

GBP

BoE Interest Rate Decision 0.1% 0.1%

12:00

GBP

BoE Asset Purchase Facility

£895B

£895B

12:00

GBP

Monetary Policy Summary

12:00

GBP

BoE MPC Vote Cut 0 0

12:00

GBP

BoE MPC Vote Unchanged 9 9

12:00

GBP

BoE MPC Vote Hike 0 0

12:00

GBP

Bank of England Minutes

12:00

MXN

1st half-month Core Inflation (Jun) 0.33%

12:00

MXN

1st half-month Inflation (Jun) -0.01%

12:35

EUR

ECB’s Panetta speech

13:00

PLN

M3 Money Supply (YoY) (May) 9.1% 11.2%

13:30

USD

Continuing Jobless Claims (Jun 11)

3.518M

13:30

USD

Initial Jobless Claims 4-week average (Jun 18)

395K

13:30

USD

Initial Jobless Claims (Jun 18)

380K

412K

13:30

USD

Gross Domestic Product Annualized (Q1) 6.4% 6.4%

13:30

USD

Gross Domestic Product Price Index (Q1) 4.3% 4.3%

13:30

USD

Wholesale Inventories (May)Preliminar 0.8%

13:30

USD

Goods Trade Balance (May)Preliminar

$-86.7B

13:30

USD

Personal Consumption Expenditures Prices (QoQ) (Q1) 3.7%

13:30

USD

Core Personal Consumption Expenditures (QoQ) (Q1) 2.5% 2.5%

13:30

USD

Durable Goods Orders ex Transportation (May) 0.8% 1.0%

13:30

USD

Durable Goods Orders ex Defense (May) 0%

13:30

USD

Nondefense Capital Goods Orders ex Aircraft (May) 2.2%

13:30

USD

Durable Goods Orders (May) 1.9% -1.3%

14:00

RUB

Central Bank Reserves $

$604.8B

15:30

USD

EIA Natural Gas Storage Change (Jun 18)

16B

16:00

USD

Fed’s Williams speech

16:00

USD

Kansas Fed Manufacturing Activity (Jun) 32

16:30

EUR

ECB’s Schnabel speech

16:30

USD

4-Week Bill Auction 0.045%

18:00

USD

7-Year Note Auction 0%

20:00

ARS

Unemployment Rate (QoQ) (Q1) 11%

20:00

MXN

Central Bank Interest Rate 4%

21:30

USD

Bank Stress Test Info

22:00

KRW

BOK Manufacturing BSI (Jul) 99 98

24h

EUR

Midsummer’s Eve

24h

SEK

Midsummer ´s Eve

23:45

NZD

Imports (May)

$4.98B

23:45

NZD

Exports (May)

$5.37B

23:45

NZD

Trade Balance NZD (YoY) (May)

$0.73B

23:45

NZD

Trade Balance NZD (MoM) (May)

$388M

FRIDAY, JUN 25

00:01

GBP

GfK Consumer Confidence (Jun) -7 -9

00:30

JPY

Tokyo CPI ex Fresh Food (YoY) (Jun) -0.1% -0.2%

00:30

JPY

Tokyo Consumer Price Index (YoY) (Jun) -0.6% -0.4%

00:30

JPY

Tokyo CPI ex Food, Energy (YoY) (Jun) -0.1% -0.1%

24h

EUR

European Council Meeting

06:00

SGD

Industrial Production (MoM) (May) 1%

06:00

SGD

Industrial Production (YoY) (May) 2.1%

07:00

EUR

Gfk Consumer Confidence Survey (Jul) -4 -7

07:00

DKK

Retail Sales (YoY) (May) 9.8%

09:00

EUR

Business Confidence (Jun) 112.0 110.2

09:00

EUR

Consumer Confidence (Jun) 112.0 110.6

09:00

EUR

M3 Money Supply (3m) (May) 10.5%

09:00

EUR

Private Loans (YoY) (May) 4.1% 3.8%

09:00

EUR

M3 Money Supply (YoY) (May) 8.5% 9.2%

10:00

EUR

Trade Balance non-EU (May)

€4.85B

10:30

EUR

Consumer Price Index (MoM) (Jun) 0.15%

10:30

EUR

Consumer Price Index (YoY) (Jun) 1.46%

n/a

INR

FX Reserves, USD (Jun 14)

$608.08B

13:00

GBP

BoE Quarterly Bulletin (Q2)

13:30

USD

Personal Spending (May) 0.4% 0.5%

13:30

USD

Core Personal Consumption Expenditures – Price Index (YoY) (May) 3.5% 3.1%

13:30

USD

Personal Income (MoM) (May) -2.0% -13.1%

13:30

USD

Personal Consumption Expenditures – Price Index (MoM) (May) 0.3% 0.6%

13:30

USD

Personal Consumption Expenditures – Price Index (YoY) (May) 4.0% 3.6%

13:30

USD

Core Personal Consumption Expenditures – Price Index (MoM) (May) 0.6% 0.7%

n/a

EUR

Current Account Balance EUR (Apr)

€265B

15:00

USD

Michigan Consumer Sentiment Index (Jun) 86.4 86.4

18:00

USD

Baker Hughes US Oil Rig Count 373

18:00

USD

Fed’s Rosengren speech

20:30

USD

CFTC S&P 500 NC Net Positions

20:30

JPY

CFTC JPY NC Net Positions

20:30

USD

CFTC Oil NC Net Positions

20:30

USD

CFTC Gold NC Net Positions

20:30

GBP

CFTC GBP NC Net Positions

20:30

AUD

CFTC AUD NC Net Positions

20:30

EUR

CFTC EUR NC Net Positions

24h

EUR

Midsummer day

 

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