It’s an action-packed week for the US Dollar with another FOMC policy decision, a first look at Q2 GDP and an update for US PCE, which is the Fed’s preferred measure of inflation.
Even though the economic data points will be important, the FOMC will no doubt be the main event for the USD – and since GDP (Thurs) and PCE (Fri) is scheduled after the Fed, the overall tone of the meeting should dictate how markets react towards the data.
Going into the meeting, markets are leaning towards a cautious and dovish sounding Fed for two reasons.
First, this meeting does not have any updated staff projections, which means dovish Fed Chair Powell won’t have to contend with any ‘hawkish’ dot plots like he had at the June meeting.Second, there are concerns about the Delta variant. Even though cases are spiking in the US and UK, the effective vaccination campaigns have meant that hospitalisations and deaths have not spiked like they did during previous waves. Thus, on that basis alone the Fed could look through the virus concerns, but why would Fed Chair
Powell not want to use this situation as a reason to sprinkle a bit more dovish seasoning?
With the short-term price action looking a bit stretched in the Dollar, and given the current expectations for the FOMC, we will look for some value opportunities in the NZD, GBP and CAD versus the USD.
But, as always, we’ll have more information on that in our reports and videos in the terminal this week.