Price action in FX markets this week has been all about the dollar. While the greenback opened on a softer footing on Monday, extending Friday’s losses the week prior as risk conditions remained supportive in the cross-asset space, the tides abruptly changed following the release of August’s CPI report out of the US. The dollar traded on a stronger note from thereon in, leaving all 30 currencies within the expanded majors (excl RUB) in the red against the greenback over the course of the week. As a result, the broad dollar index, DXY, has pushed closer to last week’s high, which was the strongest level seen since June 2002. Next week, the data calendar is dominated by a torrent of interest rate decisions as nine major central banks prepare to adjust their monetary policy. The main event, however, will be Wednesday’s Federal Reserve decision, especially after short-term interest rate traders priced in an additional 45bps worth of tightening in the Fed’s tightening cycle this week alone. This aggressive positioning will be tested as the US central bank not only announces its latest policy decision but also publishes a fresh Summary of Economic Projections.
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Simon Harvey, Head of FX Analysis
Jay Zhao-Murray, FX Market Analyst