US Dollar Looks Outward for Direction Cues as Fed Outlook Firms

Fundamental Forecast for the US Dollar: Neutral

  • US Dollar shrugs at upbeat jobs data as Fed outlook settles
  • Flood of US news may be overshadowed by external forces
  • G7 and EU meetings, RBNZ and BOE rate decisions ahead

What will shape US Dollar trends through mid-year? See our Q2 forecast to find out!

The US Dollar barely budged as April’s employment report showed payrolls growth that topped consensus forecasts and a jobless rate that unexpectedly fell to the lowest in a decade. The currency’s muted response seems understandable. Futures markets already priced in the probability that the Fed will raise rates next month at 94 percent before the release, so there was little room for upbeat jobs numbers to move the needle.

This may prove telling in the week ahead. The economic calendar is loaded with high-profile event risk. The PPI and CPI measures of inflation, retail sales statistics, and the May edition of the University of Michigan consumer confidence survey are all set to cross the wires. The Fed-speak docket is also busy, with eight policymakers scheduled to give ten separate speeches over five days (some will speak twice).

This flood of fundamental news-flow might normally be expected to stoke substantial volatility. Timid price action following the payrolls print hints that may not be the case this time around. The Fed dismissed the first-quarter slowdown in US growth as “transitory”, so the bar for disappointment big enough to alter policy bets is extraordinarily high. Alternatively, upbeat results would just confirm what traders already know.

This leaves the greenback rudderless and prone to external influence. Emmanuel Macron is widely expected to win France’s presidential election runoff but the outcome may still stoke Euro volatility. A large-enough swing in EUR/USD may echo for the US currency more broadly. Rate calls in the UK and New Zealand, an EU ambassadors’ Brexit strategy meeting and a G7 finance ministers’ summit may also factor in.