From Mark Cudmore, former FX trader who now writes for Bloomberg
Fed Can’t Help Dollar Bulls in Denial
Expect the Fed to take out one of the last pillars of dollar support today.
Dollar bulls are still not capitulating despite it being on target for a sixth consecutive week of losses. While some doubts are finally starting to creep in, the majority of analyst notes this week suggest the FOMC can put the dollar uptrend back on track. I’m surprised.
It’s hard to see how the Fed can be hawkish given the economic policy turmoil of the last couple of weeks.
All measures taken so far by Trump’s administration are negative for growth rather than reflationary. This is particularly pertinent when put in context of how optimistic expectations were only two months ago.
The pro-growth policies may come soon but, importantly, there’s no sign of them yet, and the FOMC is obliged to deal in facts rather than speculation and hope.
The economy is nowhere near running “hot.” Inflation is picking up but still hasn’t reached target, let alone given any indication it might run away to the topside.
And now the hard economic data is just starting to roll over, relative to expectations, as shown by the Bloomberg Economic Surprise Index.
Of course the Fed won’t be raising rates today, but it would be just as irresponsible of them to indicate a hike is imminent. Unless Trump changes tack rapidly, March is looking far too soon to even consider tightening policy.
The dollar’s fate is clinging to yield support after technical levels were broken across the board last night: there may be nothing solid left for it to hold on to. The correction lower could accelerate.