Following the release of the latest Nonfarm Payrolls report for June, the US dollar has continued to trade at somewhat lower levels. The US Dollar Index has now declined along with US rates after reaching an intraday high of 92.741 on Friday. USD risks may become more balanced after the NFP report, according to MUFG Bank experts.
“The recent decline in the US dollar is most likely a result of market positioning ahead of the report and high expectations for job creation. Market investors had been anticipating a big NFP report, possibly showing job growth of more than a million people, and had already reduced their short US dollar bets in recent weeks. Those lofty expectations continue to set a high bar for favorable economic data surprises in the United States.”
“Overall, we estimate the Fed will wait until early 2023 to begin raising rates, which will be slower than current market expectations. As a result, we believe the US dollar has room to retrace some of its recent steep gains as fears of even more aggressive tightening subside for the time being.”
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The release on Wednesday of the current FOMC minutes from the 16th June meeting, at which the Fed delivered the hawkish policy surprise, is the primary risk for the coming week. During the press conference that followed, Fed Chair Powell acknowledged that preliminary discussions on QE tapering plans had begun. More information about those initiatives is anticipated to be revealed in the minutes. We don’t expect the minutes to show intentions for a faster-than-expected start date for QE tapering or a faster-than-expected tapering pace.”
“We anticipate that QE tapering will begin later this year or early next year, and that it will be a gradual process through at least the first half of 2022. We would be shocked to see another hawkish surprise in the minutes after the hawkish market reaction to the previous FOMC meeting, especially because the Fed leadership has subsequently worked to calm the initial market reaction.”/n
