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Weekly roundup: US dollar buoyed by decision to raise interest rates

currency-newsWeekly roundup: US dollar buoyed by decision to raise interest rates
Having been buoyed by the Federal Open Market Committee’s (FOMC) decision last week to raise interest rates as expected, the US dollar is now facing a rather empty week in terms of data. There are plenty of Federal Reserve officials speaking, however, so USD could be moved by fluctuating odds of further monetary tightening.

Markets spent much of last week awaiting the Federal Open Market Committee’s (FOMC) interest rate decision. Although a 0.25% rate hike was as-good-as-certain, analysts were worried that recent poor jobs data could see the FOMC becoming less optimistic about hiking interest rates any further this year.

In the end, the FOMC were more upbeat than expected. As well as hiking interest rates as forecast, they also gave a surprising amount of detail on their plans to begin disposing of the enormous pile of assets left over as a result of post-financial crisis quantitative easing. Markets knew that the Federal Reserve was intending to shrink its $4.5 trillion balance sheet, but had not expected things to progress this quickly.

It wasn’t all positive for USD, however. The FOMC decisions temporarily overshadowed Wednesday’s poor inflation and retail sales data, but this could cause problems in the future. Core price growth unexpectedly slowed from 1.9% to 1.7%, while retail sales posted a -0.3% decline instead of stagnating in May.

Rounding off the week in disappointing fashion was the University of Michigan consumer confidence index, which fell much further-than-expected from 97.1 to 94.5.

A significant number of Federal Reserve officials are set to give speeches this week, including William Dudley, Charles Evans, Stanley Fischer and Eric Rosengren. Any monetary policy clues will have a strong effect on the US dollar, although not all of the speeches will reference this aspect of the Fed’s duties.

From a data point of view, the US calendar is remarkably sparse. Friday’s initial and continuing jobless claims figures and Friday’s preliminary Markit PMIs for June and new home sales data for May are the most prominent releases in the docket.
Philip McHugh

Philip McHugh

Phil joined the corporate foreign exchange department in 2000, and initially worked as a Senior Executive Dealer on the private client desk. In 2007, Phil moved to the corporate dealing desk as a corporate dealer and now oversees the corporate trading desk. Phil helps to manage the trading activity of the dealing desk and also works with a portfolio of corporate clients to help with their foreign exchange and risk management needs. Phil has attained FSA approval and has completed the Certificate in International Treasury Management (CertITM).

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