Weekly Comment – USD up for second straight week ahead of FOMC

USD got a major boost from upbeat retail sales figures this week, which eased concerns that the US economy might be slowing too sharply. The strong data supports the case for the Fed to announce tapering on Wednesday. But the Fed decision isn’t the only one being eyed as central bankers in Japan, the UK and Switzerland also meet.

The Highlights:
  • The Fed will probably hold off from deciding to begin tapering at the September meeting and instead flag a move for November. But the meeting will still be significant as the FOMC will publish its updated dot plot chart. Should policymakers bring forward their planned rate hike from 2023 to 2022, that could put more wind in USD’s sails.
  • The Bank of Japan will announce its decision a few hours before the Fed and the Swiss National Bank meets the following day. Neither are anticipated to adjust their policies. Hence, JPY and CHF will likely take their cues from the Fed’s actions and the broader market sentiment.
  • The Bank of England has taken a significant hawkish turn lately and Thursday’s meeting is expected to reinforce this shift. However, the flash PMIs for September due the same day pose a downside risk for GBP amid signs of moderating growth in the UK.
  • Flash PMIs will be watched in the Eurozone too, potentially shoring up EUR if there are any hawkish surprises from the Fed. Stock markets will also be paying attention to the global PMIs amid doubts about the outlook.
  • USD’s rebound has been devastating for gold, which is testing the $1,750/oz level. But there could be some love for the precious metal next week if the Fed is only mildly less dovish.

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