The U.S. government shutdown factored greatly into the Greenback’s price action last week. Will this continue to dictate the dollar’s price action this week?
U.S. government shutdown updates
As mentioned in the recap below, concerns over a shutdown is one of the possible reasons for the Greenback’s poor performance last week.
But judging by today’s Asian session price action, traders are either sure that the U.S. lawmakers will quickly rectify their situation or they’re confident that a shutdown won’t affect Uncle Sam’s GDP or the FOMC’s hawkish biases anyway.
Today at 12:00 PM EST U.S. Senators are scheduled to vote on providing temporary government funding through February 8. Any more delays could cause a bit of risk aversion, while a decisive voting session could signal a smoother path for a longer-term budget solution.
Advance GDP report (Jan. 26, 1:30 PM GMT)
On Friday we’ll see the first reading of Uncle Sam’s economic performance in Q4 2017.
Market players are expecting growth to have cooled down from 3.2% to 3.0% though the report has surprised to the upside in three out of the last five releases.
Take note that FOMC members generally expect real GDP – as in GDP adjusted for inflation –to clock in at 2.5% in 2017 and 2018 before it calms down to 2.1% in 2019 and 2.0% in 2020.
Any reading significantly higher or lower than what analysts have predicted could have more impact on the dollar’s price action that government shutdown updates, so make sure you stick around during the release!
Last Week’s Price Review
The Greenback had another bad run this week (as of 6 pm GMT) and is currently the second worst-performing currency after the Loonie.
The Greenback showed weakness from the start when it slid lower across the board on Monday. There weren’t any fresh catalysts, so most market analysts said that the Greenback’s slide was just an extension of last week’s Greenback-bashing.
After that, the Greenback had a mixed performance while still showing mostly weakness until Wednesday’s U.S. session rolled around, which is when the Greenback spurted higher across the board.
The direct catalyst appears to be the Fed’s so-called “Beige Book” since that revealed that 11 of the 12 Federal Reserve Districts reported “modest to moderate gains” in economic activity and remainder (Dallas) reported a “robust increase.” So economic growth all around.
More importantly for inflation (and rate hike) expectations, 10 of the Fed Districts “reported modest to moderate price growth.” The exceptions were “Chicago, which noted that prices increased only slightly while San Francisco noted price inflation was down slightly.”
Other than that, hawkish statements from Fed Members Kaplan and Evans were also cited as reasons for the Greenback’s strength. But as marked on the overlay of USD pairs above, their speeches didn’t really have a uniform impact on the Greenback’s price action. Also, the Greenback’s surge happened a few hours after they gave their statements.
Anyhow, bullish momentum on the Greenback quickly lost steam when Thursday rolled around. In fact, the Greenback began to find sellers across the board.
There were no direct catalysts, but the general narrative adopted by most market analysts is that the Greenback weakened because investors were diversifying their holding at the expense of the Greenback and growing fears of a U.S. government shutdown. Although only the latter narrative gained traction and is currently being blamed for the Greenback’s slide.
Anyhow, the Greenback staged a broad-based recovery on Friday. There was no apparent reason but short-covering by USD bears in order to avoid weekend risk is a possibility.