US dollar rebound at risk
The currency market could see a volatile week ahead as traders expect US inflation data on Wednesday. The release could be an important one after a series of estimates misses last week for manufacturing and job market figures.
Wednesday’s inflation figures could help recalibrate traders’ expectations regarding monetary policy. The Federal Reserve’s next meeting is expected at the beginning of next month which leaves room for speculation and volatility.
Markets are pricing in another increase in interest rates at the central bank’s next FOMC meeting.
The US currency has been accumulating small gains during the last couple of days after recording losses mostly during the last month. The upward outlook for interest rates could help reverse the downtrend if data comes in support of a tighter monetary policy.
At the same time, some risks for the dollar could come up as some doubts remain around the banking sector’s health and its exposure to higher interest rates. If a credit crunch materializes, the Federal Reserve could review its tightening policy, exposing the dollar to losses in the process.
The US economy could also remain exposed to the possibility of a recession this year which could impact the dollar’s prospects. Investors could choose to move to other assets like gold.
