US Dollar Near-Term Outlook sees Strength Capped: Credit Agricole
- Written by: Gary Howes
The US dollar has strengthened for two weeks in a row now, but analysts are warning that the rally's limits could be nigh. Valentin Marinov, Head of G10 FX Strategy writes:
We continue to stress that while improving labour market conditions and robust consumer fundamentals are key to underpinning growth expectations, inflation developments are a more important determinant of the pace of rate normalisation.
While stabilising commodity prices and a weaker USD are supportive of accelerating price pressures, the Fed monitors both “actual and expected progress toward its inflation goal”.
In this coming week April CPI figures are due.
Inflation is expected to pick up on higher energy prices but we see risk of a softer core inflation print, indicating that a firming trend in inflation has not been sustained following the early-year pickup.
The June FOMC minutes will also draw attention but market response is likely to be limited with a June rate hike priced out and Fed speeches ambivalent on near-term policy firming.
We stand cautious on an extended rally ahead of the June FOMC meeting, as capped rate expectations should limit the USD rally barring a significant, broad-based improvement in economic data releases.