Amid the obsession surrounding the Fed’s timeline for tapering, the mid-week FOMC meeting takes centerstage this week, sandwiched by several other potential market-moving events:
Monday, June 14
- Eurozone, Japan industrial production
- PM Johnson announcement: UK to end lockdown on June 21?
Tuesday, June 15
- BOE Governor Andrew Bailey speech
- UK unemployment rate
- Eurozone trade
- US industrial production, PPI, retail sales
Wednesday, June 16
- China industrial production, retail sales
- UK inflation, PPI
- FOMC decision
Thursday, June 17
- Eurozone CPI
- US initial jobless claims
Friday, June 18
- BOJ decision
- Germany PPI
- UK retail sales
Of course, as has been the case for much of 2021 so far, market participants would like to know when will the Fed begin tapering its bond purchases? That’s the most pressing question that Fed Chair Jerome Powell will have to field after Wednesday’s FOMC meeting.
Though the central bank is likely to keep preaching the message of patience, the slightest hint that policymakers are getting closer to pulling back its pandemic support measures could lift the greenback.
Note the recent range-bound performance of the FXTM US dollar index, which is an equally-weighted index comprising the following currency pairs:
The FXTM US dollar index has refused to take things lying down, having displayed its relative resilience. The greenback has been kept sideways by some push and pull factors of late, including a second consecutive monthly disappointment in the May US nonfarm payrolls, and the highest year-on-year growth for the headline consumer price index in 13 years
This past Friday, the buck also saw broad-based gains versus its G10 counterparts, boosted by a better-than-expected reading on US consumer sentiment in early June, which prompted a slight uptick in US Treasury yields.
All this shows that the dollar remains sensitive to markets’ shifting expectations surrounding the economic data that could guide the Fed’s hand before tapering its support measures for global financial markets. And with more key US data due this week, including industrial production, producer prices, retail sales, and of course, the weekly jobless claims, the dollar is expected to keep gyrating to these economic prints, as per markets’ interpretation about how it could influence the central bank’s policy bias.
Ultimately, it could require an overt shift in tone out of the FOMC to move the dollar out its sideways range that it has adhered to since early May.
UK reopening timeline to impact Pound
While awaiting the dollar’s mid-week catalyst, Pound traders could be in for some action later today. UK Prime Minister Boris Johnson is scheduled to announce whether the UK’s lockdown measures will end on 21 June, although doubts about this timeline has increased given the spike in Covid-19 cases of late, particularly those of the delta variant.
Overall, GBPUSD has been trading sideways in recent weeks too. The currency pair, also known as “cable”, has been supported by enough optimism surrounding the UK economic reopening, coupled with a national vaccination rate that’s envied by many other countries. Amid such a backdrop, there are even whispers that the Bank of England could turn hawkish sooner than expected.
For today, GBPUSD could be put on a path towards a new year-to-date high if the UK government does stick to the June 21 reopening timeline. If not, Sterling bears may use the disappointment to unwind some of the Pound’s gains of late, even as GBP strengthens against most Asian currencies as well as its G10 peers, except for New Zealand dollar, at the time of writing.
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