The Dollar in Focus, with the Trump Team and FOMC in the Spotlight

The Dollar managed to steady by the close on Monday, with prelim private sector PMI figures for July coming in ahead of forecasts, easing concerns over the U.S economy going into the 3^rd quarter, following the IMF’s latest downgrade in its forecasts for U.S growth, with growth for the current year having been revised down from 2.3% to 2.1% and from 2.5% to 2.1% for next year.

Unsurprisingly, UK growth forecasts were also downgraded, following a slew of weak data in recent weeks, though it wasn’t all doom and gloom with the IMF’s forecasts for global growth standing firm.

The downgrade had limited impact on the Dollar, as the markets continue to focus on noise from Capitol Hill, with key members of the U.S administration involved in meetings on Capitol Hill through the early part of the week.

Uncertainty over fiscal policies was one of the reasons behind the IMF’s downward revision and the Dollar has certainly responded to the administration’s failings in delivering on growth policy pledges through the first 7-months of the year, with the ongoing investigations expected to scupper any hopes of progress.

Despite the Dollar having steadied on Monday, the Dollar Spot Index was down 0.15% at 93.836 at the time of the report, with the markets now also having to consider the outcome of the FOMC’s 2-day meeting starting this afternoon. Expectations are for rates to be left unchanged, supported by the more dovish sentiment shared by FOMC members and the FED Chair, leaving uncertainty over whether there will be a firmer commitment to the FED’s intentions to begin selling down the balance sheet in the coming months.

Thrown into the mix will be this afternoon’s July CB Consumer Confidence figures, consumer confidence needing to hold steady for the Dollar to avoid further declines later today, though anything in line with forecasts will be considered a negative for the Dollar.

Events in Capitol Hill will likely be of greater interest to the markets than macroeconomic data out of the U.S and depending on the outcome of scheduled meetings, could overshadow the FOMC statement tomorrow afternoon, the Dollar likely to have more to lose than to gain and it will all boil down to whether the FOMC statement provides a timeline on well the anticipated sell-down can begin and whether the outcome of the meetings catch the markets off-guard.

Despite disappointing July prelim private sector PMI figures out of the Eurozone on Monday, the EUR has managed to recover through the early part of the day, up 0.20% at $1.1665, with the IMF’s positive outlook on the Eurozone economy easing the negative sentiment towards the weaker PMI numbers, with the markets needing to be cognizant of the fact that the PMI figures are still strong in spite of the lower productivity reported in July.

Macroeconomic data out of the Eurozone this morning is limited to Germany’s IFO Business Climate Index figures, which will provide further direction to the EUR, German business sentiment considered a key economic indicator for the Eurozone’s largest economy. Forecast point to a slight decline in optimism, though any figures in line with or better than forecast unlikely to be too detrimental to the EUR.

We will expect the Dollar to remain under pressure ahead of today’s consumer confidence figure, with any material gains will likely be on hold, as the markets look ahead to tomorrow’s FOMC statement and outcome to meetings between members of Trump’s administration and Mueller’s team of investigators.