Monetary policy in scope with FOMC minutes and ECB strategy review

Market price action has been all about the US dollar this week. Whether it is risk-off flows because of concerns over the Delta variant and rising tensions over Taiwan or month-end flows, the DXY has closed out the week stronger than it stated. Although, it wasn’t all plain sailing. Friday’s Nonfarm Payroll data saw the US economy add more jobs than expected, but despite the job gains, some 9.5m workers were still left on the sidelines. The increase in the unemployment rate from 5.8% to 5.9% suggested that although the employment increase was welcome, it wouldn’t have any implications for the Federal Reserve and their expected timeline for policy normalisation. Because of this, the dollar closed out the Friday session lower, driven down by falling Treasury yields, as US investors set their positions ahead of the 4th of July weekend. Next week, the meeting minutes from the Fed’s June meeting will be scoured by market participants as they try to gain a clearer view on future US interest rates. On the topic of monetary policy, the ECB’s Governing Council is set to also meet next week in Frankfurt to discuss the ongoing policy review. The impromptu meeting suggests that there is a desire to wrap up the 18-month review ahead of September’s meeting, where policy divergence between the Fed and ECB could pose substantial headwinds to EURUSD.

Monex’s Week Ahead:

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Authors:

Simon Harvey, Senior FX Market Analyst

Ima Sammani, FX Market Analyst

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