This week is pretty compact for dollar traders. US markets will be practically closed for the last two days of the week, with all the major data coming out over the course of Tuesday and Wednesday. Markets are open for half a day on Friday, but there are no major events expected from the American side. With a lot of moving parts to the data in an uncertain climate, there could be quite a bit of movement in dollar pairs over the next couple of days, with a trend that could persist well into next week.
The latest development that saw the dollar weaken against major currencies was the announcement late Friday from President Elect Donald Trump. It said he would seek to appoint former hedge fund manager Scott Bessent to head up the Department of the Treasury, replacing former Fed Chair Janet Yellen. The reason for the reaction is that Bessent is seen more as a “business as usual” pick, away from the hawkish tone on tariffs that had been the staple of Trump’s campaign. There had been a lot of anticipation around the Treasury head pick, as it is seen as a signal around what Trump’s fiscal policy will be.
The Week Ahead: FOMC
The first major event that could substantially rile up dollar traders is the release of FOMC minutes on Tuesday, a day early from the normally scheduled Wednesday release. This is from the pivotal post-election meeting where the Fed agreed to cut rates by 25 bps, but declined to provide concrete foreshadowing that it would cut again in December. Investors are going to be keen to see if there is any change in the outlook from the September meeting.
In the meeting before last, the Fed essentially projected a rate cut for the final gathering of the FOMC, through its “dot-plot” matrix. The Fed won’t be providing that summary this time around, so investors will have to parse each member’s wording to see if it matches up with the predictions of a rate cut. If it does, that could add to weakness in the dollar. If the members saw a substantial change in outlook – even saying they would be more data dependent – then it could give the dollar a boost as it would likely raise the chance that the Fed will hold pat in December.
Inflation Holding Steady
Next up is the PCE price index, the preferred inflation measure of the Fed and dollar traders, which comes out on Wednesday at the same time as a host of other data. The headline rate is expected to stay unchanged at 0.2% for the month. What’s likely to get more attention is the annual core rate, which is also expected to remain elevated at 2.7%. Without meaningful progress in bringing down inflation, the Fed might be inclined to keep rates up.
The other factor that could change the Fed’s mind about rates is the economy. The first look at US Q3 GDP showed a marginal deceleration to an annual rate of 2.8% from 3.0%. That rate is expected to be confirmed in the second reading on Wednesday. But, a beat in the figure could also shift expectations away from a rate cut.
Similarly, Durable Goods are seen as a measure of optimism businesses have for the economy. This will be the first measure since the election, and it’s expected to pop back into positive at 0.3% from -0.7% prior. Though the prior reading might be overly negative on account of businesses holding off until they get the election results.
