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What to expect from the dollar this week: the Fed can provide a hint


After reaching almost two-year highs, the US currency's rise has stopped. Apparently, the greenback took a wait-and-see position on the threshold of two key events of the current week. On Wednesday, the next meeting of the Federal Reserve System (FRS) of the United States is to be held, and a report on the US labor market for April will be released on Friday.

At the moment, market participants are primarily concerned with the following question: what conclusion did the Fed make from the release of the US GDP for Q1 published at the end of last week?

Recall that the indicator significantly exceeded market expectations, having increased by 3.2%. At the same time, the PCE Core index, which is an important inflationary indicator for the Fed, has grown at a slow pace since 2013 - by 1.3% after rising 1.8% in the fourth quarter. The Fed targets this figure at 2%.

Therefore, the main intrigue is whether at the next meeting the regulator will focus on improving the country's GDP data or focus on the depressed state of inflation.

By the way, the slowdown in the wages in the US can serve as a brake on the latter. The corresponding data for April will be made public this Friday. In March, the indicator increased by only 0.1% after rising 0.4% a month earlier. It is possible that while maintaining the downtrend, the Fed will have another reason to reflect on the "softening" of the monetary rate.

Most economists polled recently by Bloomberg believe that the US central bank will not cut rates this year, even if core inflation slows, while the derivatives market estimates the likelihood of such a move by the regulator at 60%.

According to the results of the March meeting of the Fed, the greenback slumped after the scatter plot reflected the reluctance of the majority of FOMC members to raise the interest rate this year. However, in the light of current sentiments among world central banks, even in the event that the Fed's "dovish" rhetoric is strengthened, one can hardly expect a significant weakening of the dollar.

"With the fall of the dollar, we will have to wait a little, because the news on the state of the global economy will hardly be positive enough to strike the US currency in the near future. We expect that on the horizon of three months, the euro will fall to $1.10, and the USD index will rise to 99 points," according to Goldman Sachs experts.

The material has been provided by InstaForex Company -