US Dollar Forecast: Fed Firmly in Focus
The US Federal Reserve stands to provide the most significant influence for foreign exchange markets this week, with expectations running high that an interest rate cut will be seen. It may not be the 50 basis point cut that many had been predicting a few weeks ago, but a modest reduction in borrowing costs seems as good as guaranteed. If the Fed does fail to deliver on this move on Wednesday, expect broad-based gains for the US Dollar and exchange rates such as the Pound US Dollar (GBP/USD) to be pressured as a result. Any narrative regarding whether this is the first of a series of moves, or a ‘one and done’ will also be closely followed. The more dovish the tone, the weaker the Dollar is likely to be.
Eurozone Inflation to Direct Euro Exchange Rate
Following the European Central Bank’s decision last week not to cut interest rates, but instead settle for telegraphing a strong willingness to do so, the Eurozone Consumer Price Index data on Wednesday will be under close scrutiny. The Bank’s target is to keep inflation just below the 2.0% mark, but with this number printing a mere 1.3% in June, the question being asked is whether the ECB’s decision to hold fire indicative of a surprise coming in this next reading. Consensus forecasts suggest a worsening, but if an overshoot is recorded, then look for the common currency to rally significantly as a result. The Pound Euro exchange rate (GBP/EUR) has the potential to be squeezed if the number is flattering.
Bank of England Rate Call Should Hold no Surprises
Keeping with the central bank theme, the Bank of England’s (BoE) Monetary Policy Committee (MPC) will on Thursday unveil its latest thoughts on the economy. The bank’s latest quarterly inflation forecasts will also be unveiled, but potentially the most influential factors will be contained in Mark Carney’s narrative. He may well take the opportunity to yet again talk up the risk of a no-deal Brexit, something that looks increasingly likely until there are signs of meaningful progress between the new Prime Minister and senior European politicians. The Pound Euro exchange rate (GBP/EUR) could be left exposed by negative rhetoric here.
US Employment Should Qualify Fed’s Stance
On Friday, the latest Non-Farm Payroll and average hourly earnings figures will be released from across the Atlantic. Assuming the Federal Reserve only go with a quarter-point rate cut on Wednesday, any shortfall here, especially in terms of wage growth, has the potential to heap pressure onto the US Dollar exchange rate. Monthly average wages are forecast to grow by 0.2% but failure to hit that modest target will again raise fresh concerns over dwindling inflation and drive calls for the Federal Reserve to do more. The Greenback could find itself exposed as a result, lending support to the likes of the Pound US Dollar rate (GBP/USD).