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Outlook for the US dollar this week: the focus turned to CPI and Fed officials' speeches, and the US dollar continued to rise

发布时间：2022-08-25 浏览：117

• fundamentals outlook of the US dollar this week: bullish

• the 75 basis point interest rate hike of the Federal Reserve has been diluted, but the tightening of the balance sheet is coming

• focus on us CPI data and Fed officials' speeches this week

The dollar fluctuated sharply last week, and all eyes were on the Federal Reserve. The Federal Reserve fulfilled its promise to raise the benchmark lending rate by 50 basis points.

The initial reaction of the market was a mild interest rate hike, and Federal Reserve Chairman Powell downplayed the market's expectation that the market would consider raising interest rates by 75 basis points in the coming months. As a result, the dollar fell.

As traders digested this information, market sentiment reversed and the dollar regained its footing. Finally, quantitative tightening is just around the corner.

The above chart quantifies the expected process of tightening, starting from the initial rate of $47.5 billion per month in June, and accelerating to $95billion three months later. By 2024, the size of the balance sheet will still be higher than the midpoint of the growth during the pandemic.

On the financial calendar, the focus this week is on the US April inflation report. The CPI in April is expected to decline slightly from 8.5% of the previous value to 8.1%, and the core CPI is expected to decline from 6.5% to 6.1%, which is still far higher than the target set by the Federal Reserve.

Stronger reports could further strengthen the dollar and amplify risk aversion. Interestingly, the Citi economic surprise index showed that the data of the United States still exceeded economists' expectations, but the gap between the optimistic results and expectations has been narrowed. It was as high as 70 in April and fell to 18 before the non-agricultural announcement. If this figure is lower than 0, the actual result is worse than the consensus expectation of economists.

In addition, this week will also see a large number of speeches by Federal Reserve officials, including mester, Bostick and Williams, who are the governors of the Cleveland, Atlanta and New York Federal Reserve respectively.

To some extent, they can convince the market that the U.S. economy can withstand radical monetary tightening. This may ease market sentiment in the short term and may pose a threat to the US dollar.

However, taking all factors into consideration, the dollar can still continue to fight against major currencies. It can be said that the Fed is still the toughest among the G10 countries.

At the same time, a stagnant balance sheet remains an obstacle to major changes in market sentiment. Therefore, the dollar, the world's reserve currency, is still bullish this week.