Investing.com – The U.S. dollar is expected to stabilize in the coming weeks after recent economic data showed mixed signals about the strength of the U.S. economy. After a period of volatility, ING analysts now expect a calmer trading environment with low volatility until more significant data is released.
The latest inflation data showed a slight slowdown, with the core consumer price index rising 0.3% month-on-month, the first slowdown in six months. Conversely, retail sales showed no growth in April, fueling speculation that U.S. economic momentum may be weakening. Despite these indicators, the Federal Reserve’s persistent concerns about inflation suggest that interest rates are likely to remain high for an extended period.
Comments by members of the Federal Open Market Committee (FOMC) following the release of the consumer price index reflect a cautious stance on monetary policy. Hawkish FOMC member Neel Kashkari highlighted the possibility that current policy may not be tight enough, while Austan Goolsbee, in a typically dovish tone, acknowledged that further efforts are needed to achieve lower inflation.
Market expectations have changed: forecasts now favor two rate cuts during the year, which was not seen last month. This forecast is more optimistic than some analysts, who are predicting a more dovish trajectory with three rate cuts starting in September 2024. However, these expectations depend on upcoming economic releases, such as the headline PCE data due May 31 and employment data in early June, which could support a dovish stance if it is in line with current trends.
The yen’s recent rally may be short-lived as disappointing Japanese economic growth data emerged, contributing to the currency’s loss of momentum. In a market environment characterized by low volatility, carry trading is expected to become a preferred strategy among investors. The dollar, especially against low-yielding currencies such as the yen, is expected to find stability in the 104/105 range.
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Today’s US economic calendar includes jobless claims, April housing starts and the Philadelphia Fed’s business outlook index. These reports, as well as speeches from Fed officials such as Raphael Bostic, Loretta Mester and Thomas Barkin, could affect market sentiment. China’s retail sales and industrial production data will also be closely watched as they could set the tone for the market heading into the weekend.
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