Busy Week of USD to Focus on FOMC & NFP

Investors will likely re-focus on the FOMC meeting and economic data next week, assuming no last-minute surprises from Congress, that could result in a government shutdown.

On the FOMC meeting, CACIB expects the Fed to acknowledge weaker growth and inflation data on Wednesday, but to also signal that this ‘soft patch’ is not enough to change its policy outlook.

"This leaves the window for a June hike wide open, with the usual caveat of data dependency," CACIB adds. 

In terms of next week's US data, CACIB economists are more optimistic than consensus on the core PCE deflator, which they expect to slow only slightly to 1.7% YoY. Meanwhile, they expect non-farm payrolls headline growth to rebound from the March pace and the unemployment rate to remain below NAIRU.

All in, CACIB continues to believe the USD is in the process of bottoming out as market rate expectations have fallen too far below the Fed’s.