The turbulence on global markets, including stock markets, has calmed down. This supports the weakening of the dollar, which began a rally correction from the second half of January.
The US indexes have had three upward sessions in a row: the January tensions seem to have rubbed off. Since the recent lows, the S&P 500 index has rebounded by about 8% and the Nasdaq technology index by almost 10%.
The US dollar is recovering from last week's strong rally. This is accompanied by a rebound on the stock market and a correction of the extremely high expectations regarding the Federal Reserve's policy tightening pace. At the beginning of the week, money market rates were still pointing to a 20% probability that the cycle would start with a 50bp move in March. Today, it should be estimated at slightly more than 10%, despite the statements of FOMC members confirming a sharp turn towards abandoning the crisis policy.
Further deterioration of expectations regarding the intentions of the US monetary authorities will depend on information from the economy, with Friday's labour market report at the forefront. It may strongly emphasize the negative influence of the growing number of omicron cases on the economic situation. In this context, tomorrow's ISM index reading, the leading barometer of sentiment in the services sector, will also be closely watched.
On the one hand, our currency forecasts assume that the dollar has exhausted its upward potential, and the highs against most of the main currencies are behind us. On the other hand, the US currency has a central bank willing to respond boldly to the combination of low unemployment, mounting wage pressures and record inflation. This means that the dollar will remain attractive against the euro, the franc or the yen.
This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.
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27 Jan 2022 9:02
Dollar near its highs again (Daily analysis 27.01.2022)
The turbulence on global markets, including stock markets, has calmed down. This supports the weakening of the dollar, which began a rally correction from the second half of January.
The US indexes have had three upward sessions in a row: the January tensions seem to have rubbed off. Since the recent lows, the S&P 500 index has rebounded by about 8% and the Nasdaq technology index by almost 10%.
The US dollar is recovering from last week's strong rally. This is accompanied by a rebound on the stock market and a correction of the extremely high expectations regarding the Federal Reserve's policy tightening pace. At the beginning of the week, money market rates were still pointing to a 20% probability that the cycle would start with a 50bp move in March. Today, it should be estimated at slightly more than 10%, despite the statements of FOMC members confirming a sharp turn towards abandoning the crisis policy.
Further deterioration of expectations regarding the intentions of the US monetary authorities will depend on information from the economy, with Friday's labour market report at the forefront. It may strongly emphasize the negative influence of the growing number of omicron cases on the economic situation. In this context, tomorrow's ISM index reading, the leading barometer of sentiment in the services sector, will also be closely watched.
On the one hand, our currency forecasts assume that the dollar has exhausted its upward potential, and the highs against most of the main currencies are behind us. On the other hand, the US currency has a central bank willing to respond boldly to the combination of low unemployment, mounting wage pressures and record inflation. This means that the dollar will remain attractive against the euro, the franc or the yen.
See also:
Dollar near its highs again (Daily analysis 27.01.2022)
Focus goes beyond data (Daily analysis 17.01.2022)
The dollar: what won't rise will fall (Daily analysis 13.01.2022)
The US dollar weakness may abate (Daily analysis 10.01.2022)
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