Forex Week Ahead: USD on Fire After FOMC Hawks Reset Markets

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.

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

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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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