Dollar Downtrend In The Spotlight Ahead Of FOMC Minutes, NFP

Fundamental Forecast for the U.S. Dollar: Neutral

The U.S. Dollar put in a precipitous decline this week, setting yet another new low as price action fell below the election night swing from November of last year. This means that we’re now looking at an -8% decline in the Greenback, peak-to-trough, from the 2017 high to this morning’s low; and surprisingly, the Federal Reserve has remained persistently hawkish throughout this period as we’ve now seen three rate hikes in the past seven months. But this recent decline probably has less to do with the Fed and more to do with what else is happening in U.S. economic data relative to the rest of the world; which has opened the possibility of the European Central Bank moving closer to exiting their stimulus program, or perhaps even the prospect of an actual rate hike from the Bank of England in the U.K.

This theme really came to life on Tuesday and Wednesday of this week when the who’s who of global Central Banks met in Europe. While Janet Yellen echoed the cautiously-confident tone that she’s become so well-known for, Mario Draghi delivered a speech that many market participants construed in a hawkish light: The Euro jumped-higher and continued running-up for most of the week, and the decline in the Dollar really began to show as DXY plummeted down to fresh eight-month lows. The day after Mr. Draghi’s comments we heard that an ‘unnamed ECB source’ indicated that the speech was ‘misjudged’, as the intent was to be more balanced in nature rather than signaling any potential tightening of policy. But by then, it was too late, and markets seemed to care little about this anonymous source’s opinion as Euro strength and Dollar weakness just continued to run after a momentary dip in both trends were soundly pounced upon.