USD: what to expect from the Fed?

USD dollar strengthened in the past week breaking below the key levels against EUR, GBP, CAD and NZD.

Next week there will be several important data releases in the US: core durable goods orders and consumer sentiment on Tuesday and advance GDP for Q4 on Friday – we’ll see whether American economy has managed to maintain its impressive growth momentum in the final months of 2014. All in all, US economy remains in good shape, but the December decline in retail sales and the low inflation are a negative sign.

On Wednesday, Jan. 28, watch the outcome of the Fed’s meeting. As other central banks from Europe to Canada do monetary easing, the Fed may become more cautious and deliver mild, dovish comments. In this case we may see some correction down in USD.

Note, however, that the ECB’s massive quantitative easing will make a positive impact on the European and global economy, so after all the Fed may decide to stick to its course of normalizing policy. In this case higher yielding commodity currencies will get another blow. We think that the USD buying in case of a hawkish Fed could be more intense than its selling if the Fed sounds dovish.

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