A much stronger dollar post-FOMC

The dollar ends a busy period of central bank meetings much stronger than it started, seeing the DXY index break sustainably through 100, and testing 101 ahead of the weekend. While Middle East peace negotiations formed the backdrop for the move, it is the newly appointed Fed Chief Kevin Warsh who bears most responsibility in our view. His scrapping of forward guidance and a lack of steer on current conditions has been interpreted as hawkish by markets. While we disagree, this has nevertheless refocused attention on interest rates as a primary FX driver, finally allowing FX pairs to break out from the well-traded ranges of recent months.

Looking ahead, the week coming up is a little quieter, with a lighter docket of events scheduled. Canadian CPI, S&P PMIs, and a raft of Australian data will influence currencies at the margin but are unlikely to dictate broader market sentiment. Our sense is that these will be overshadowed by continued fallout from the past week’s Fed meeting, and a by-election in the UK, which makes a challenge to PM Keir Starmer’s leadership almost inevitable. With that in mind, we will have one eye on GBPUSD in the coming week, with the other looking nervously at USDJPY. That latter pair remains stuck above 160 as of writing late on Friday, keeping FX interventions top of mind.

You can read the Week Ahead in full here:

Authors:

Nick Rees, Head of Macro Research

Barry van der Laan, Senior FX Market Strategist

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