US dollar at risk with key data and Fed meeting ahead
Pressures remained on the dollar as traders await the Federal Reserve’s meeting next week and the details of the central bank’s monetary policy direction. Jerome Powell’s speech could be the highlight of next week as traders could weigh every word to determine the next potential steps of US interest rates. Markets have been pricing one last interest rate hike, a relatively short pause and a potential decline in rates. The current view could be eventually challenged on the day of the meeting and the market could see strong volatility.
In the meantime, the dollar has been losing ground against other major currencies with the euro in particular leading with a more hawkish view. The European currency could continue to benefit from the expectations of more interest rate hikes by the ECB. The latter might maintain its aggressive policy to fight elevated inflation in the euro area. The GBP could follow suit as the Bank of England could also raise rates and maintain them elevated for a longer time than its US counterpart.
Both currencies could benefit from the re-emerging fears around the US banking sector with investors looking for alternative assets to park their cash. However, both currencies could be competing against gold if confidence deteriorates further and capital leaves the US dollar en masse. The ongoing talk around the debt ceiling could also contribute to a weaker dollar in particular if the confrontation between Republicans and Democrats drags on.
The USD dollar will be confronted with the US GDP and job market figures’ release tomorrow and could see strong volatility in case of a big discrepancy with estimates. The US is expected to see slower economic growth as interest rate hikes’ effects continue.
The dollar could also see more losses against the Chinese yuan over the medium term if the Chinese government’s meeting reveals a positive policy for China’s economy. However, the tensions between the US and China could add to the uncertainty, fueling volatility, as US initiatives could hinder Chinese growth in certain key areas like technology.
