US Dollar Fundamental Forecast: Bullish
- US Dollar[1] continued gaining on risk aversion and Fed rate hike estimates
- Focus this week shifts to US non-farm payrolls, which includes wage data
- RBA, ECB and BoE could offer hawkish tilts, will this induce risk aversion?
The US Dollar roared higher this past week, catapulted by a hawkish Federal Reserve monetary policy announcement[2]. Chair Jerome Powell opened the door to raising rates and ending quantitative easing in March. He was also not shy about leaving the door open to hiking at every rate decision this year if conditions warrant. On the chart below, a majors-based US Dollar index, which averages USD[3] against EUR[4], JPY[5], GBP[6] and AUD[7], can be seen closely tracking December 2022 Fed rate hike bets. Four increases are expected this year, with markets slowly pricing in a fifth.
US Dollar Versus Fed Rate Hike Bets
Chart Created in TradingView[8]
The US Dollar heads into the new week in a rather strong state. In addition to the boost from the Fed, rising global market volatility is playing another role in boosting demand for haven assets. The Greenback, which is the world’s most liquid currency, tends to be a prime benefactor when market jitters permeate. Is there enough fundamental tailwinds to keep the US Dollar on the offensive?
All eyes are on the non-farm payrolls report. The nation is expected to add about 180k positions in January, down from roughly 200k in December. More focus may be given on average hourly earnings, which are anticipated at 5.2% y/y from 4.7% prior. Looking at the next chart below, it could be argued that the labor market is tight.
As the unemployment rate has
