US dollar: outlook for August 22-28
US dollar survived another week of declines. Despite hawkish comments of the Fed members Williams and Dudley, FOMC July meeting minutes showed that not all policymakers think that the central bank should raise rates in the near term.
Economic data released during the past week mixed. Monthly growth of American consumer prices has stalled and Empire State manufacturing index declined. However, industrial production growth accelerated and the number of unemployment claims dropped more than expected.
The lack of unity from the Fed and ambiguous economic figures didn’t make investors price in higher possibility of the Fed’s rate hike. According to CME, futures market is pricing in 15% possibility of a hike in September and less than 5% chance of increase in December. In other words, traders don’t believe that hawkish comments of the Fed members will be followed by action. Low expectations of a rate hike represent the main negative factor for USD.
The picture may change next week, when global central bankers will meet at Jackson Hole, Wyoming. Fed Chair Janet Yellen will speak on Friday and she may follow Williams and Dudley hinting that the Fed will raise interest rates rather sooner than later. That would be reasonable as it makes more sense for the Fed to prepare traders for potential hike than not. The market should give more weight to Yellen’s words and this would be a reason for a bullish pullback in the greenback. However, if the head of US central bank sounds cautious, we’ll see another selloff of American currency.