Weekly Comment – More pain for USD or will the Fed let something slip?

After some wild gyrations, nothing much has changed for USD as investors are in the dark as ever on when the Fed will dial back its QE programme. The only thing that has become more certain is that it’s less likely to be in the summer. As markets are bombarded with conflicting data, the volatility can only get worse. But a quieter week ahead might provide some respite.

What to watch:

  • The focus will remain very much on the Fed at the start of the week as a number of officials hit the podium. Their views are bound to be seen as more up-to-date than the April FOMC meeting minutes due Wednesday. Should any worries about inflation overshooting be revealed, USD could get a boost, though this is unlikely.
  • AUDUSD will be hoping to recoup some losses from Thursday’s Australian employment report, while USDCAD could plunge to fresh lows if Canadian inflation and retail sales figures are upbeat.
  • EUR and GBP have capitalized the most from USD’s wobbles. The flash PMIs for May due Friday should further underscore the positive sentiment for Europe, supporting both currencies in case USD attempts a rebound.
  • The rally in many soft commodities took a breather this week, though precious metals like GOLD have performed well in the face of accelerating inflation.
  • Meanwhile, stock markets will continue to be driven by expectations around how quickly the Fed might begin to roll back its QE programme.

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