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, analysts at ING now expect a calmer trading environment with low volatility until more substantial data is released.
Recent inflation figures show a slight slowdown, with core CPI rising 0.3% month-on-month, marking the first slowdown in six months. Conversely, retail sales failed to show any growth in April, fueling speculation that economic momentum in the US could be waning. Despite these indicators, the Federal Reserve’s continued concerns about inflation indicate that interest rates are likely to remain higher for some time to come.
Comments from members of the Federal Open Market Committee (FOMC) following the CPI release indicate a cautious attitude towards monetary policy. Hawkish FOMC member Neel Kashkari highlighted the possibility that current policy may not be tight enough, while Austan Goolsbee, with a typically dovish attitude, acknowledged that further efforts are needed to achieve disinflation.
Market expectations have changed and forecasts now call for two rate cuts within the year, a sentiment not seen in the past month. This outlook is more optimistic than some analysts who foresee a smoother trajectory, with three rate cuts starting in September 2024. However, these expectations depend on upcoming economic releases, such as key PCE data due on May 31 and employment figures from early June. can support a mild story if they align with current trends.
The yen’s recent rally may be short-lived as disappointing Japanese growth data has emerged, contributing to a loss of momentum for the currency. In a market environment characterized by low volatility, carry trades are expected to become a preferred strategy among investors. The dollar is expected to find stability in the 104/105 range, especially against low-yielding currencies such as the yen.
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Today’s U.S. economic calendar shows unemployment claims, the start of housing construction in April and the Philadelphia Fed Business Outlook index. These releases, along with speeches from Fed officials such as Raphael Bostic, Loretta Mester and Thomas Barkin, could influence market sentiment. In addition, retail sales and industrial production figures from China will be closely watched as they could set the tone for the market heading into the weekend.
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