King Dollar ends winning streak with countdown to ‘Wildcard’ Fed meeting starts by Investing.com

By Yasin Ebrahim

Investing.com – The dollar rose on Friday, but remains set to burst a two-week winning streak as investors have turned their attention to the Federal Reserve’s monetary policy meeting, scheduled for next week, which may to be a “wildcard” for US bond yields, which have been rising the dollar.

The, which measures the US dollar against a basket weighted by trade in the six major currencies, rose 0.26% to 91.66, driven by an upward movement as investors bet on stimulus-led recovery.

The liquidity scenario for President Joe Biden’s $ 1.9 trillion stimulus package, the ongoing positive economic data and the increased bond offer – to finance government spending – are likely to continue to support rates in the short term, but the Federal Reserve remains a key wildcard, Jefferies (NYSE 🙂 said in a note.

“[W]We expect the rate to continue moving in the short term. The Fed, as always, remains a key wildcard, “added Jefferies.” So we think people need to watch price action very closely at next week’s Fed meeting, ”he added.

The Fed will provide a new update on its economic outlook that is likely to reflect the faster rate of growth and transitory inflationary pressures, but with the labor market still below pre-pandemic levels, the central bank will maintain its projection of lending rates close from zero until 2023.

The growing scrutiny of price action in the bond market comes in the wake of a rapid upward movement in bond yields, which are traded inversely at price, and is most often a boon to the dollar. There are fears that the change may indicate that inflation is in danger of a spiral of control. Still, the level of concern seems to be exaggerated, since real earnings are only two basic points.

The press conference following the Fed’s decision was closely monitored after Fed Chairman Jerome Powell at a recent virtual event – organized by the Wall Street Journal – said the move in rates caught his eye, but he downplayed the risk of inflation flight.

“The bonds were sold after Powell’s WSJ questions and answers, putting pressure on risky assets and raising the dollar. If the Fed chairman can present a dovish narrative so that US Treasury bonds prevent a disorderly settlement, then those currencies exposed to the global business cycle – including the euro – can probably enjoy some modest gains at the end of the week, “said ING in a note.