ICYMI, the Greenback was last week’s biggest loser. What’s up with that?! More importantly, will this week’s set of economic events be enough to push the dollar higher?
On Wednesday at 7:00 pm GMT the Fed will publish its minutes from its meeting earlier this month.
If you recall, Janet Yellen’s last meeting as Governor was a bullish one for the Greenback, as members shared their optimism over inflation and hinted of “further” tightening down the road.
Aside from the meeting minutes due in the middle of the week, we’ll also hear from other FOMC members.
Randal Quarles will open the act on Thursday at 5:15 am GMT, followed by William Dudley at 3:00 pm GMT and Raphael Bostic at 5:10 pm GMT.
Friday is busier for the team with Dudley taking back center stage at 3:15 pm; Loretta Mester speaking at 6:30 pm, and John Williams sharing his two cents at 8:40 pm GMT.
Make sure you know which ones are voting members when digesting the members’ speeches!
More bloodbath for the dollar?
As mentioned below, the Greenback had trouble finding bullish momentum despite higher U.S. Treasury yields, stronger CPI report, and higher rate hike expectations.
While there was no specific catalyst for the bearish move, analysts liked to point out higher demand for other global assets and overall risk-taking as reasons for the dollar’s demise.
But will the tides turn this week? Hawkish speeches by FOMC members, risk aversion, and profit-taking from short dollar trades are only some of the reasons for a reversal over the next couple of days. Or not. In any case, make sure you keep tabs on any news that might affect the dollar’s intraweek price action!
Last Week’s Price Review
After a two-week break, the Greenback is apparently trying to resume its losing streak since it is presently the worst-performing currency of the week (as of 6:00 pm GMT).
The Greenback actually had a steady start but began to show weakness during Monday’s U.S. session. And market analysts blamed that on the risk-on vibes at the time since that supposedly convinced some investors to unwind their safe-haven trades on the Greenback, as well as ramping up demand for the other currencies at the Greenback’s expense.
After that, the Greenback continued to weaken against most of its peers on Tuesday. There were no fresh negative catalysts on Tuesday, so market analysts said that Monday’s narrative continued to play out, even though risk aversion plagued Tuesday’s London session. Although risk appetite did get revived later during Tuesday’s U.S. session.
The Greenback finally found support during Wednesday’s Asian session, likely because of preemptive positioning and/or short-covering ahead of the U.S. CPI report.
And when the report was finally released, CPI readings actually came in better-than-expected, so the Greenback spiked higher against its pairs (not so much against JPY) as a knee-jerk reaction.
However, Greenback bears later staged a counter-attack, and market analysts were quick to pin the blame on the risk-on vibes in the wake of the CPI report. Basically, they’re saying that the narrative that started on Monday was still in play.
Market analysts don’t really have a consensus as to what is driving the Greenback lower, though, since U.S. bond yields surged and rate hike expectations got reinforced because of the better-than-expected CPI report, and yet the Greenback fell.
Aside from the unwinding of safe-haven Greenback trades, market analysts also blamed the large supply of dollars outside of the U.S. and the large positions that foreign investors have in U.S. government bonds, as well as strong global growth fueling demand for other currencies.
The short of it is that the Greenback supposedly benefited from interest rate differentials when the Fed started its hiking cycle. However, expectations of stronger global growth and higher appetite for risk has made non-U.S. investments more attractive. And this outflow from U.S. investments saps the Greenback’s strength while boosting the currency of beneficiary economy.
Well, that’s what some market analysts are saying anyway.
Anyhow, the Greenback continued to slide lower before finally finding some respite on Friday.
The U.S. did release positive housing data, but the Greenback was already on its way up long before then, so the more likely reason is that Greenback bears were covering their shorts.
The damage was already done, however. And so the Greenback is this week’s biggest loser.