US DOLLAR OUTLOOK: BULLISH
- The U.S. dollar[1], as measure by the DXY index, rises about 2% for the week, supported by soaring U.S. Treasury rates
- The FOMC[2] meeting will be the highlight of the U.S economic calendar and the main catalyst for price action next week
- The Fed is likely to take a very hawkish stance at its June meeting in light of recent inflation developments, creating a bullish environment for yields and the U.S. dollar
Most Read: S&P 500, Nasdaq - The Bears are Back; USD Spikes, EUR/USD Slides[3]
The U.S. dollar index (DXY) rallied this past week, jumpingalmost 2% and breaking above the 104.00 handle, bolstered by soaring U.S. government rates. Yields have risen sharply in recent days, but the upswing was particularly largeon Friday after May U.S. inflation surprised to the upside[4], surging 8.6% year-on-year, a fresh cycle high and the hottest reading since 1981. Against this backdrop, the Treasury curve shifted upwards across all tenures, with the 2-year yield topping 3% for the first time since 2008.
Looking ahead to next week, when the Fed monetary policy gathering is the highlight of the economic calendar, the U.S. currency is likely to remain biased to the topside as markets position for the possibility of a much more aggressive tightening cycle in response to unrelenting and broadening price pressures in the U.S. economy.
For context, prior to Friday's CPI release, Wall Street[5] only discounted a 50 basis points hike for the June FOMC meeting, but now wagers for a 75 bps adjustment are increasing, with traders assigning a 40% probability to the latter scenario just before the weekend, versus 3% on Thursday. If these expectations solidify in the coming sessions,
