USD: Focus on Fed meet and CPI this week – Westpac

In view of Imre Speizer, Research Analyst at Westpac, this week’s event calendar will be important for markets and USD: notably the FOMC decision and CPI data.

Key Quotes

“There’s also retail sales and the first June surveys (Philly, Empire, NAHB & Michigan sentiment).”

“The Fed is unlikely to deliver a hawkish surprise to the USD market. A hike is 100% priced; an jobs, inflation and wage data have all surprised on the downside lately. Influential Fed insiders such as Brainard mused that persistent low inflation could lead to reassessment of the Fed’s path.”

“Indeed, recent weaker data might prompt modest downward revisions to the ‘17 and ‘18 GDP median (2.1%) and the core PCE inflation median (1.9% & 2% respectively), though unemployment is sitting below the Fed’s projections. The dot plot of projected rate hikes is probably “safe” (3 hikes in 2017 & 2018), a shift requiring an implausibly large number of participants to change.”

“3 months ahead: The USD index will struggle for sustained topside. Growth and inflation trends do not warrant a hawkish Fed, Republican consensus on tax cuts and infrastructure is still lacking, Russia-gate adds another impediment to the Republicans’ agenda and a debt ceiling showdown appears to be on the horizon.

By year end though, we expect these risks to have dissipated, the US dollar resuming the trend rise witnessed in 2016.”