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This Week: Dollar to keep adhering to hawkish Fed clues?

Amid a holiday-shortened week for US equities, FX markets will continue looking out for the latest clues surrounding the Fed’s intentions for raising US interest rates:

Monday, February 20

  • CNH: China loan prime rates
  • EUR: Eurozone February consumer confidence
  • US markets closed

Tuesday, February 21

  • AUD: Reserve Bank of Australia policy meeting minutes
  • EUR: Eurozone February ZEW survey, PMIs
  • GBP: UK February PMIs
  • CAD: Canada January inflation, December retail sales
  • USD: US February PMIs

Wednesday, February 22

  • NZD: RBNZ rate decision, January external trade
  • EUR: Germany January CPI (final)
  • USD: FOMC minutes

Thursday, February 23

  • EUR: Eurozone January CPI (final)
  • USD: US weekly jobless claims, Q4 GDP (second), Atlanta Fed President Raphael Bostic speech

Friday, February 24

  • JPY: Japan January CPI; BOJ Governor-nominee Ueda to appear before Japan’s lower house
  • EUR: Germany Q4 GDP (final), March consumer confidence
  • USD: US January PCE deflator, personal income and spending, February consumer sentiment
  • 1-year anniversary of Russia’s invasion of Ukraine


It is a quieter calendar with Friday’s January PCE deflator data the highlight in the US.

  1. The minutes of the FOMC meeting could grab some headlines as they may reveal what conditions need to be met for the Fed to pause its tightening.
  2. The PCE deflator is the Fed’s preferred inflation gauge and economists say its lower weight on shelter could make for a more substantial move down than CPI.

    Markets are currently forecasting January’s PCE Deflator to have risen by 5% compared to January 202 (year-on-year). That would still be in line with December’s 5% year-on-year rise, suggesting that inflationary pressures are still stubbornly elevated.


But the bottom line is that rising short-term US interest rates as investors reprice the world’s most powerful central bank are supportive of a stronger USD, especially if we see hawkish undertones within the latest FOMC minutes or a higher-than-5% PCE deflator print.

Positioning, which has run against the dollar in recent weeks is not extreme but may be one-sided enough to support a short squeeze.

We also note that seasonal pressures do generally help greenback bulls in the first quarter, with Q1 witnessing the largest quarterly gain on average over the past 20 years:

  • Q1 = average gain of 0.59%
  • Q2 = average gain of 0.03%
  • Q3 = average gain of 0.23%
  • Q4 = average decline of 0.45%

(since 2003)

This Week: Dollar to keep adhering to hawkish Fed clues?



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