US Dollar Price Volatile as Fed Comments Collide with Trump
US Dollar Price Talking Points:
- The DXY Index has seen prices whipsaw this afternoon amid a flurry of comments from US policymakers.
- FOMC member Bullard doesn’t anticipate a 50-bps rate cut in June, while Fed Chair Powell says the FOMC stands ready to “act as appropriate.”
- Retail traders continue to buy the US Dollar on weakness, suggesting that the recent downtrend may not be over yet.
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The US Dollar (via the DXY Index) is having a volatile day of trading thanks to an inadvertent war of words between fiscal and monetary policymakers. Following the June Fed meeting last week, Federal Reserve interest rate cut odds have exploded higher, with rates markets pricing in potentially three 25-bps rate cuts by the end of the year.
Recall that at their peak following the March Fed meeting, rates markets were pricing in a 58% chance of a 25-bps rate cut in September; now, odds of a September cut are 100%. There is now an 88% chance of a second cut by September, and a 56% chance of a third cut by October. Overall this year, there’s a 100% chance for one rate cut, a 97% chance for two rate cuts, and a 75% chance for three rate cuts.
Fed Funds Futures Rate Expectations (June 25, 2019) (Table 1)
Fed Chair Jerome Powell and FOMC member James Bullard both offered commentary within a few minutes of each other that has traders speculating on the timing of the next rate move. Meanwhile, Trump administration officials have come out on record talking down the US Dollar. On balance, US Dollar price action has been a wash.
DXY Index Technical Analysis: 1-minute Price Chart (June 25, 2019 Intraday) (Chart 1)
Following the flurry of comments from US policymakers, the US Dollar (via the DXY Index) saw a bout of volatility that saw daily losses turn into gains before reversing again. When FOMC member Bullard said that a 50-bps rate cut was unlikely in July, the DXY Index traded higher from 96.00 to near 96.20. Then after Fed Chair Powell demurred on the scale of potential rate cuts, saying that the FOMC stands ready to “act as appropriate,” the DXY Index jumped from near 96.20 to session highs at 96.37.
But when the anonymous Trump administration official said that the US president believed that the US Dollar is “too strong,” the DXY Index immediately gave back all its gains over the prior hour. Falling from 96.37, the DXY Index was trading at 96.12 at the time of writing.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail at firstname.lastname@example.org
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