The dollar has opened flat this morning, after paring its gains last Friday. Despite strong Q3 GDP growth numbers of Friday, the reaction in the US dollar was muted. Instead, markets have been focused on stories on Bloomberg (and more lately in the Wall Street Journal), claiming that Trump favors Jerome Powell to be the next Federal Reserve Chair. According to the Journal story, Trump has settled on Powell but has not yet made the final decision. While the position of Vice Chair also remains open, Treasury Secretary Mnuchin claims that the White House will not make both appointments at the same time. Given Powell's views as a current member of the Fed Board, it is likely that he will continue the Fed's existing policies. Today, the Fed is gradually raising interest rates while shrinking its bond portfolio.
USD/JPY is now below 114, and is currently trading close to to 113.70 this morning. EUR/USD is up slightly today and is now below 1.1620. The pound is up against the dollar, with GBP/USD currently above 1.3140.
While this week includes a Fed interest rate decision, expectations are very low for a rate hike. Instead, markets will be focused on the statement to gauge the Fed’s perspective on economic data. On Monday, we’ll see Core Personal Expenditures (the Fed’s preferred measure of inflation), as well as the Dallas Fed manufacturing index. On Tuesday we’ll see Case-Shiller home prices and the Chicago PMI. Wednesday is Fed day alongside ISM manufacturing, Market manufacturing PMIs, construction spending and ADP employment figures. On Thursday we’ll see jobless claims, labor costs and productivity. Finally on Friday we’ll get nonfarm payrolls, labor force participation, the unemployment rate, Markit Services PMIs, ISM non-manufacturing PMIs and factory orders. Last week saw very strong Q3 GDP figures.
After the ECB meeting and the House budget resolution vote, we are upgrading the US dollar back to bullish. In early October, we warned that the dollar looked overbought in the short-term time frame. After strengthening recently, the currency is now again above overbought thresholds. Our analysis is based on various technical indicators when looking at a daily chart of the US dollar index.
Thanks to progress in enacting Trump's tax reforms, the US dollar has been strengthening since mid-October. The currency has also been supported by rising bond yields as Trump looks set to select the next Federal Reserve Chair. As such, we are upgrading our medium-term outlook on the dollar back to bullish. After looking oversold in early October, the dollar is now trading within normal conditions. This is based on technical indicators when looking at a weekly chart.