Will this week’s FOMC meeting minutes boost U.S. Treasury yields to new notable highs? More importantly, how much will its price movements affect the dollar?
Let’s take a look at the Greenback’s potential catalysts this week:
FOMC minutes and Powell’s speech
On Wednesday (May 23, 6:00 pm GMT) the Fed will publish its minutes from its May meeting. If you recall, FOMC members had raised their rates by 25 basis points as markets had expected.
However, the Fed’s “dot plot” also showed that members are still voting for a total of three rate hikes this year when market players are already expecting four. The not-so-hawkish statement, as well as a bit of profit-taking helped pull the dollar lower across the board.
This week we’ll see if Governor Powell and his team are actually more hawkish than the statement projected.
And if the meeting minutes doesn’t yield any new insight, then perhaps Powell himself can enlighten us when he answers questions in a panel discussion on Friday (May 25, 1:20 pm GMT) in Sweden.
Geopolitical and trade updates
That the U.S. is involved in a lot of complicated plots is nothing new for market players. However, these days those headline-makers also happen to move the dollar (and the markets).
Keep closer watch on headlines that discuss Trump’s June meeting with North Korea’s Kim Jong Un, possible additional sanctions on Venezuela and Iran, and how the U.S. teams deal with NAFTA and China’s trade negotiations.
Any one of the issues above can affect demand for U.S. bonds and the Greenback, so make sure you’re glued to the tube in case we see market-moving headlines!
Last Week’s Price Review
The Swissy widened its lead against the Greenback (as of 5:00 pm GMT) so the Greenback has to content itself with second place.
Despite being one of the main winners of the week, the Greenback’s price action was actually somewhat messy, especially during the later half of the week.
There were even instances of diverging price action. And that implies that the Greenback was being pushed around by its peers, at least during the second half of the week.
Anyhow, the Greenback started the week on the back foot. There weren’t any apparent catalysts, but as mentioned in Monday’s London session recap, market analysts were pinning the blame on growing doubts that the Greenback’s rally is sustainable.
The Greenback recovered some poise during Monday’s U.S. session, though, with some market analysts attributing the Greenback’s recovery to rising U.S. bond yields, which put interest differentials into play (again) in favor of the Greenback. Other than that, it’s also possible that easing trade war fears may have helped to push the Greenback higher.
After that, the Greenback powered higher across the board on Tuesday as U.S. bond yields rose.
However, the Greenback rally stalled when the rise in U.S. bond yields stalled after San Francisco Fed President John Williams said that he’s not seeing signs that inflation is taking off.
U.S. bond yields slipped even further and the Greenback began to feel additional selling pressure after word got around that North Korea was supposedly threatening to walk away from denuclearization talks as a response to U.S. National Security Advisor (and notorious warmonger) John Bolton’s “colorful” comment that the U.S. supposedly has the “Libya Model” in mind for North Korea, which implies that Kim Jong-un will be removed from power and then forced to take a dirt nap.
At any rate, U.S. bond yields eventually began to rise again during Wednesday’s U.S. session. However, the Greenback didn’t follow suit since the Greenback only strengthened against the yen, steadied against the Swissy, and continued to lose ground against everything else. No clear reason why, though.
The Greenback finally regained its mojo during Thursday’s London session. And as pointed out in Thursday’s London session recap, market analysts were attributing the Greenback’s rise to the rise in U.S. bond yields, even though U.S. bond yields took a step back late into the session.
After that, the Greenback steadied for a while before becoming more mixed come Friday.