The US dollar is currently strengthening against all major currencies except the Japanese yen. The dollar is the strongest against the Australian dollar, the Canadian dollar and the euro. This is a crucial weak for the US dollar as a Federal Reserve interest rate decision and monetary policy meeting is scheduled. While markets have priced in a 0.25% rate hike, there is the additional concern that the Fed will signal a faster pace of hikes via its "dot plot". Last week, growth-related economic indicators including job openings, consumer confidence and industrial production were all ahead of consensus estimates. As this is Jerome Powell's first Fed meeting, there is a risk that he signals a faster pace of hikes given the strength of the US economy.
In other news, global risk sentiment is waning thanks to new developments in Japan and the rising risk of a global trade war. A poll released over the weekend showed that Japanese Prime Minister Abe is losing support. If he steps down, there is a risk that "Abenomics" will be derailed as a result. The Japanese yen is strengthening as a response. Turning to global trade, US Treasury's Malpass stated that China's move away from market liberalization was a concern. He reversed an earlier statement that the US had ended formal talks with Beijing. Given it's reliance on Chinese exports, AUD/USD continues to weaken as a result of trade tensions. Our short-term outlook on the dollar is neutral, while our medium-term outlook remains bearish.
USD/JPY is down today and currently trading above 105.70. EUR/USD is down and trading above 1.2260. The pound is down slightly, and GBP/USD is currently above 1.3910.
Looking at US economic data this week, markets will be looking forward to Jerome Powell’s first FOMC meeting, durable goods orders and existing home sales. On Monday, FOMC member Bostic will deliver a speech. Wednesday is the most important day, and we’ll get existing home sales and the Fed’s monetary policy statement, interest rate decision, economic projections and press conference. Markets are expecting the Fed to raise interest rates by 0.25% and signal further hikes this year. On Thursday, we’ll see initial jobless claims, the housing price index for January and March preliminary Markit services and composite PMIs. On Friday, we’ll hear from FOMC members including Bostic and Kashkari. We’ll also get February durable goods and February new home sales. Last week, headline inflation and core inflation met expectations.
As the dollar gains strength, we are upgrading the dollar to neutral in the short-term. Note that the currency is now trading within normal conditions in the short-term time frame. Our analysis is based on various technical indicators when looking at a daily chart of the US dollar index.
Thanks to recent dollar weakness, we are downgrading the US dollar to bearish. Note that the currency is trading within normal conditions. This is based on technical indicators when looking at a weekly chart.