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US Dollar (USD) Forecast: Fed Boosts Liquidity, Expected to Slash Rates Again Next Week

US Dollar (USD) Forecast: Fed Boosts Liquidity, Expected to Slash Rates Again Next Week

Nick Cawley, Strategist
US Dollar Basket Chart

US Dollar Weekly Price Forecast, Analysis and Chart:

  • Emergency US dollar liquidity underpins King Dollar standing.
  • Further interest rate cut expected at next week’s FOMC meeting.

US Dollar Recovery Continues

The US dollar has once again proved that it is the safe-haven asset of choice when markets turn sour, jumping higher all week as global financial markets crumbled on heightened coronavirus fears. The Fed announced a USD1.5 trillion injection of short-term liquidity Thursday, but even this wave of new money failed to dampen the greenback’s strength, with risk-off buyers to the fore. The Fed’s move has helped to underpin equity markets, in the short-term at least, after global indices crashed into bear market territory throughout the week. The dramatic sell-off across the board - reminiscent of the 1987 crash - prompted a ‘dash-for-cash’, with other safe-haven assets, including gold, sold-off indiscriminately.

US Dollar Basket Daily Price Chart (September 2019 - March 13, 2020)

DXY Daily Price Chart

Earlier this month the Federal Reserve announced an emergency 50 basis point interest rate to take the effective rate down to 1.00% - 1.25%, the first emergency cut since the global financial crisis of 2008. Next week the markets are pricing another, larger, rate cut at the FOMC meeting on Wednesday with 91 basis points priced-in, indicating the potential for a 100-basis point cut, taking the effective rate down to 0.00% - 0.25%. The Fed may also announce additional quantitative easing, although yesterday’s actions were dubbed by many as QE4 after the Fed said that they could buy maturities across the curve.

The US dollar now stands between being the ultimate safe-haven asset and as a currency that has lost is yield advantage against a range of other currencies. While other central banks have cut rates, none of them will have come close to matching the Fed if 75bps or 100bps are slashed net week. In markets as volatile as this, liquidity is King and will remain so until the coronavirus spread slows, leaving the US dollar underpinned and primed to potentially move even higher.

For all market moving data and events see the DailyFX Calendar

Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on the US Dollar – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author via Twitter @nickcawley1.

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