The US dollar strengthened at the end of last week as expectations for faster monetary policy tightening from the Federal Reserve supported USD despite underwhelming US payrolls figures.
-US dollar surges as market sentiment sours.
-Federal Reserve signals interest rates are going to remain near zero for a long time.
-USD weekly lows: €0.87, £0.78, AU$1.41, NZ$1.52, C$1.33, ¥106.62, Mex$21.47
-USD weekly highs: €0.89, £0.80, AU$1.46, NZ$1.56, C$1.36, ¥109.64, Mex$22.94
The US dollar opened last week on the back foot, with rising market optimism limiting demand for the safe-haven currency through the first half of the session.
The ‘greenback’ then struck new multi-month lows in the middle of the week after the Federal Reserve concluded its latest policy meeting, with Chairman Jerome Powell warning that the bank ‘isn’t even thinking about raising interest rates’.
However the Fed’s accompanying forecast of a 6.5% slump in the US economy in 2020 and warning of a ‘long road to recovery’ gave way to dramatic rally in the US dollar through the second half of the week.
The Fed’s gloomy outlook appeared to scupper hopes for a swift recovery in global growth, which (alongside fears of a coronavirus resurgence) soured market sentiment and sent investors flocking to the perceived safety of the US dollar.
Turning to this week’s session, we may see investors continue to favour the US dollar in the face of renewed coronavirus concerns.
Reports of a cluster of new infections in Beijing over the weekend looks set to feed into concerns of a second wave and drive investors towards the ‘greenback’ and other safe-haven assets.
On the data front, the US dollar may be buoyed at the start of this week by the latest US retail sales figures as economists forecast sales growth will have rebounded from –16.4% to 8% in May following some lifting of coronavirus restrictions.
Also of note for USD investors will be Powell’s testimony in front of Congress.
The Chair of the Fed is expected to offer more detail on the bank’s economic projections, potentially striking a slightly less dovish tone than at least week’s policy meeting as he discusses how economic activity is poised to recover in the second half of the year.
Upcoming US data releases
16/06 - 13:30 Retail Sales (May)
16/06 - 15:00 Fed Powell Testimony
18/06 - 13:30 Initial Jobless Claims (13/06)
18/06 - 13:30 Philadelphia Manufacturing Index (Jun)
19/06 - 18:00 Fed Powell Speech
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