Forex Weekly Outlook May 7-11 – Did The Dollar Reach Its Peak?

The US Dollar enjoyed another week of significant gains, at times defying news that could have turned it around. Can it continue rising or will it correct to the downside? The inflation report stands in a week that also features two rate decisions. Here are the highlights for the upcoming week.

The US Non-Farm Payrolls disappointed with a gain of only 164K and a slowdown in wages: 2.6% YoY and 0.1% MoM. The greenback initially struggled but recovered quickly. There were some silver linings in the report but the comeback may be more related to the notion that this will not stop the Fed from raising rates in June. It also followed the reaction to the Fed’s May decision. As expected, Powell and his colleagues left rates unchanged but changed their characterization of the inflation target and called it symmetric. Markets understood that as a hint that the Fed may tolerate higher inflation and the dollar dropped at first before rising.

The greenback had an easier path against the euro, with a confirmation of the economic moderation in Q1, 0.4% growth, and lower inflation, with Core CPI falling to 0.7% y/y. The dollar also made considerable gains against the pound, which suffered mostly disappointing PMI data as well as concerns about a more hardline stance of the British government following the resignation of Home Secretary Rudd.

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