Morning Brief – What to expect from the Dollar this week

Charles Porter
Thu 6 Jul 2023

What to expect from the Dollar this week

Trading conditions within the greenback, or to you and I the US Dollar, often set the tone for the wider market. In fact, due to the dollarisation of global trade, trading conditions and the outright value of the Dollar often set the tone for markets further afield. The bank holiday on Tuesday in the United States marking July 4th made for quiet trading conditions and narrow ranges. Despite some late-session USD buying yesterday, the market remains on edge for data and an opportunity to analyse the latest Fed thinking.

Last night, the market received the FOMC minutes. Whilst this detailed account of the latest Federal Reserve meeting is always closely watched, this particular publication will attract particularly great attention. With the Federal Reserve having taken a pause in June, these minutes will allow a more detailed understanding of the thinking behind this decision. At the moment, markets are still weighing up the prospect of further hikes later this year as well as trying to determine at which point rates will begin to fall once again. Should these minutes be determined by investors to provide reasonable doubt for current pricing or even indicate a more definitive pivot point, expect the US Dollar to move.

Digestion of the minutes will be complicated by data due today and tomorrow. In line with our expectation for a data-driven market, ISM Purchasing Managers’ indices and the critical non-farm payrolls data releases could both create volatility and directional movement in the Dollar. The forecast for the payrolls is lower than that expected in June covering the month of May. Any beat of those expectations could trigger further inversion within the US yield curve and short-term USD strength. What would likely provide a larger catalyst for a change in the value of the Dollar and attract more volatile conditions would be a significant underperformance in the jobs data. The market will therefore be braced for readings closer to zero versus the consensus near-quarter of a million jobs to be added for the month of June. 

Discussion and Analysis by Charles Porter

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