Weekly Fundamental US Dollar Forecast: Rate Hike Odds Buoy the Buck

FUNDAMENTAL FORECAST FOR THE US DOLLAR: NEUTRAL

  • US Treasury yields continue to rise in accordance with rapidly escalating Fed rate hike odds, underpinning US Dollar strength.
  • The March US nonfarm payrolls report on Friday may be dwarfed by the ongoing commentary from Federal Reserve policymakers that a 50-bps rate hike is coming at their next meeting.
  • According to the IG Client Sentiment Index, the US Dollar has a mixed bias heading into the last week of March.

US DOLLAR WEEK IN REVIEW

The US Dollar shrugged off a poor performance in mid-March, closing last week higher by +0.59%, its sixth weekly gain over the past seven weeks overall. But the headline gain masks a more complicated story: the US Dollar lost ground against most currencies last week. GBP/USD rates were up by +0.03%, USD/CHF rates lost -0.13%, and USD/CAD rates dropped by -1.02%. Instead, the heavy lifting was done by EUR/USD and USD/JPY rates, with the former losing -0.62% and the latter adding an impressive +2.47%.

US ECONOMIC CALENDAR IN FOCUS

Like for most of the past month, it remains the case that US economic data are not a significant factor in the US Dollar’s recent success or failures. Markets are paying more attention to what Federal Reserve policymakers are saying, insofar as they’ve been ‘foaming the runway’ for a 50-bps rate hike when they meet next in May, more or less neutering the importance of data releases until then. Moreover, higher commodity prices and interbank market funding stresses resulting from Russia’s invasion of Ukraine and the ensuing sanctions by the European Union and the United States retain significant sway over market conditions.

With that said, here’s the US economic data due out in the coming days:

  • On Monday, March 28, the February US goods trade balance and the February US retail inventories (ex-autos) will be released at 12:30 GMT.
  • On Tuesday, March 29, the January US house price index will be published at 13 GMT, followed by a speech by New York Fed President John Williams. March US consumer confidence figures will be in focus at 14 GMT.
  • On Wednesday, March 30, weekly US mortgage applications figures will be released at 11 GMT followed by the March US ADP employment change report at 12:15 GMT. Shortly thereafter, the final 4Q’21 US GDP report will be published.
  • On Thursday, March 31, a plethora of data releases are due out at 12:30 GMT: the February US PCE report; weekly US jobless claims; February US personal income figures; and February US personal spending figures. At 13 GMT, New York Fed President Williams will give remarks.
  • On Friday, April 1, the March US nonfarm payrolls report will be published at 12:30 GMT, as will the March US unemployment rate. The March US ISM manufacturing PMI and February US construction spending data will be released at 14 GMT.