US dollar at a crossroads amid economic data deluge
James Chen, CMT April 4, 2017 6:54 PM
Despite this modest boost since late March, the dollar remains vulnerable, as always, to the vagaries of the Fed and the critical economic data that drives its policy decisions.
Political considerations, especially with respect to the increasingly uncertain outlook for the Trump Administration’s policy plans, also play a key role in the dollar’s direction. In the end, however, any political impact on the dollar is ultimately reflected in the economic data trends that result.
Later this week, President Trump will have a critically important meeting with Chinese President Xi Jinping, in which the sensitive and potentially market-moving topics of trade imbalances and currency valuations will likely be discussed.
On the US domestic front, this week provides a solid glimpse into how the US economy is unfolding as the new administration continues to settle-in and the Fed continues to waver in its policy outlook. While the interest rate hike in March was a clear signal of the Fed’s intention to follow a policy-tightening path, the somewhat dovish FOMC projections for further rate increases has put into question the extent and magnitude of that path.
On Wednesday, minutes of March’s FOMC meeting will be released. These minutes will be closely-scrutinized by the markets in attempts to glean more clues about the Fed’s outlook for the economy and interest rates going forward.
US Economic Growth
Key data events this week for the dollar include the ISM non-manufacturing (services) PMI data for March that will also be released on Wednesday. The headline number is expected to be around 57.1, well in expansion territory, after the previous month’s better-than-expected 57.6 reading. The employment component of this data will also be of critical importance, as it provides a strong indication of the overall jobs environment in the US. The services sector PMI is even more closely-watched than that of the manufacturing sector, which was already released on Monday. The ISM manufacturing PMI data was reported in-line with expectations at 57.2, also well in expansion territory, but its employment component was more impressive at 58.9, showing a substantial acceleration of growth from the previous month.
On the US jobs front, which is among the greatest concerns for the Fed, the US Labor Department’s official jobs report will be released on Friday. This will include the heavily-anticipated non-farm payrolls (NFP) data. Current expectations are for around 175,000 jobs added in March, after February’s stellar 235,000 outcome. Prior to Friday’s official jobs report, Wednesday will bring the ADP private employment data, which can often change expectations for the NFP, as was the case last month. In the event of another solid or better-than-expected jobs report, the Fed could be pressured even more to accelerate its pace of policy-tightening.
So where does all of this leave the US dollar? As always, dollar direction is considerably at the mercy of whether or not the US economy continues to show a strong trend of improving growth and employment as reflected in the data. Our projections indeed lean towards a continuation of this positive trending in the US economy for the near-term, as well as sustained progress overall in US economic data. Barring any substantially negative surprises, this scenario should support the potential for accelerated Fed tightening and further strengthening for the dollar going forward, particularly against the backdrop of serious pressures faced by both the euro and pound.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.