This week, the main attention of traders will be directed to the US dollar, which at the end of last week, managed to recover its losses against the leading world currencies and reached the level of 90.50. To date, the dollar index has slightly decreased its positions – to the level of 90.41.
The publication of data on consumer sentiment in the US provided strong support for the dollar on Friday, which showed unexpectedly high growth in the consumer confidence index in June – from 82.9 to 86.4 points. In addition, the latest US inflation report showed that consumer prices in the country rose by 2% in three months, which is quite expected given such a high annual inflation rate of 8.2%.
The foreign exchange market is obviously becoming more vigilant ahead of the Fed meeting. The future of the US dollar exchange rate depends on the meeting of the Federal Reserve scheduled for Wednesday. Weak data on consumer spending and employment in the US suggest that the tapering of QE this week is unlikely. In the case of signals from the Fed to maintain a soft monetary policy for some time, the dollar will not find trumps in its pocket and will definitely sink. The depletion of the greenback will trigger growth in the stock market and raise the value of other currencies that are traded in pairs with the dollar.
At the same time, the central banks of many countries are already reducing the asset purchase program, thereby implementing a tightening of monetary policy. And this is even though the pace of recovery of their economies today is noticeably behind the United States. Similar decisions are expected from the Federal Reserve, but the regulator deliberately does not notice serious price pressure, although the growth of the consumer price index in the United States for the first time in the last ten years jumped to 5%. The inflationary pressures that we feel today in the United States are not seen in almost any developed country. And while the Fed hopes that the inflated prices of food and cars will gradually begin to decline, there is a high probability that these hopes will not be fulfilled, because businesses are eager to cover all the lost income during the quarantine period.
If at Wednesday’s meeting there are signals of readiness to turn the US policy towards tightening, then the greenback’s position will take a leading position among other currencies, and this status will exist as long as the central banks of other countries do not join this trend. Emerging market currencies will experience strong pressure during the strengthening of the dollar.
So far, market participants have not reached a consensus on the QE tapering, but the release of the report on retail sales in the US scheduled for Tuesday will open the veil of secrecy and determine expectations.