News & Analysis at your fingertips.

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.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
Subscribe
Please try again
EUR/USD
Bearish
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
Oil - US Crude
Bullish
Wall Street
Mixed
Gold
Bearish
GBP/USD
Bearish
USD/JPY
Bullish
More View more
US Dollar May Rise as FOMC Minutes Flag Fed Policy Standstill

US Dollar May Rise as FOMC Minutes Flag Fed Policy Standstill

2020-11-22 08:00:00
Ilya Spivak, Head Strategist, APAC
Share:
US Dollar Chart

Chart created with TradingView

US DOLLAR FORECAST: BULLISH

  • US Dollar selloff stalls as the Fed policy outlook moves away from dovish extremes
  • Officials signaling that monetary policy may have reached its Covid-fighting limits
  • FOMC minutes may reiterate hands-off stance, souring market-wide risk appetite
Advertisement

The US Dollar has been stabilizing since early- to mid-August after a precipitous decline the mid-March Covid outbreak peak. The selloff reflected ebbing safety-minded buying as the Fed’s expansive stimulus effort – most notably, an open-ended QE program – cooled credit market stress and revived risk appetite. The slide found a floor as the US central bank signaled a pivot toward wait-and-see mode.

Tellingly, the Greenback found a floor just as the yield advantage enjoyed by benchmark 10-year US Treasury bonds against major international alternatives began to cautiously expand. The slope of the US yield curve steepened in tandem, signaling that investors’ Fed monetary policy outlook was beginning to move away from dovish extremes.

US Dollar vs Treasury spread

Chart created with TradingView

This transition is consistent with a palpable pivot in policymakers’ rhetoric. Fed Chair Jerome Powell and company have argued that – while they have no intention of tightening in the near term – there is little that monetary policy can do to counter the loss of economic activity disrupted by lockdowns aimed at containing the coronavirus outbreak.

The narrative is compelling. While the Fed can ensure that credit markets remain amply supplied with liquidity, it cannot force borrowing to finance a pickup in demand to actually occur. Mr Powell and his colleagues have routinely called on fiscal authorities to step into the breach. Government spending is able to at least in part replace lost private-sector activity. Monetary policy cannot.

How to Use IG Client Sentiment in Your Trading
How to Use IG Client Sentiment in Your Trading
Recommended by Ilya Spivak
Improve your trading with IG Client Sentiment Data
Get My Guide

US DOLLAR MAY RISE ON FOMC MEETING MINUTES

This logic is not altered by slowing economic recovery amid another upswell in viral cases and the follow-on reinstatement of lockdowns of varying severity across the US, nor the ongoing deadlock in fiscal stimulus negotiations. Indeed, PMI survey data due next week is expected to show that manufacturing- and service-sector activity growth slowed in November.

With this in mind, the upcoming release of minutes from this month’s FOMC meeting may inspire US Dollar gains. If policymakers again assert that there is little to be done for monetary policy besides the management of credit costs, this seems likely to sour risk appetite – reviving demand for haven assets including the Greenback – even as it underpins relative yield-based support for the bellwether currency.

--- Written by Ilya Spivak, Head Strategist, APAC at DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivakon Twitter

US DOLLAR TRADING RESOURCES

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

DISCLOSURES