We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Bullish
Oil - US Crude
Mixed
Wall Street
Bullish
Gold
Bearish
GBP/USD
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
USD/JPY
Bullish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
More View more
US Dollar at the Mercy of External Monetary Policy Trends

US Dollar at the Mercy of External Monetary Policy Trends

2018-01-13 02:32:00
Ilya Spivak, Head Strategist, APAC
Share:
US Dollar at the Mercy of External Monetary Policy Trends

Fundamental Forecast for the US Dollar: Neutral

  • US Dollar continues to suffer even as Fed rate outlook seemingly improves
  • Selloff may reflect rush to participate as new tightening cycles get underway
  • BOC rate decision, UK CPI and Australian jobs data in the spotlight ahead

What are the DailyFX team’s top trading ideas for 2018? Find out here!

The US Dollar is starting 2018 much as it did the previous year, with a long losing streak. The greenback has now fallen for five consecutive weeks against its major counterparts. Interestingly, this is happening even as Fed rate hike bets continue to swell.

Indeed, the priced-in tightening path implied in Fed Funds futures has steadily steepened since September. It now points to a cumulative 60 basis point gain in the next 12 months. That’s two rate hikes, and maybe a third. Investors put the probability that the first of these happens at the March FOMC meeting at 88.2 percent.

That puts the markets’ outlook and that of Fed policymakers broadly in line. Furthermore, central bank officials seemingly never miss an opportunity to stress that they favor slow and cautious stimulus withdrawal, hinting that a change in this status quo position is unlikely.

Against this backdrop, the greenback’s losses seem to reflect external factors, with capital flows chasing opportunities to get in early as other top central banks begin to dial back accommodation. The rush to capture would-be policy pivots from the BOJ and the ECB was clearly on display last week.

This means that the currency’s path next week will probably reflect developing yield prospects outside of the US. A slowdown in UK CPI may be helpful in that it keeps the BOE on the sidelines but a cheery tone from the BOC and a strong Australian jobs report that shifts up RBA rate hike bets may trigger selling.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.