• FOMC statement had one theme: strength
  • Two more rate increases in 2018 will further strengthen USD
  • Strong wage growth and job creation could further bolster the dollar

If Thursday’s FOMC rate decision had a single theme, it would be “strength”. This term appears multiple times in the Fed statement, and it boosted members’ commitment to two more rate increases this year.

This raised the odds of another rate increase next month as well as one in December.

Taking into account the fact that the Fed is currently just about the only large international Central Bank to consider tightening its monetary policy, this could help to keep the USD buoyant for the rest of the year.

After yesterday’s Fed meeting, the USD continued strengthening in Asian and European forex markets. The Dollar Index is close to 95, a level that has served as resistance since late May. The DXY tried to break out above this level in June and July but failed and returned to support.

Today’s Non-farms Payroll report could send the USD higher or lower. Analysts generally expect that 193,000 jobs were created in July, combined with a 3.9% unemployment rate and an annual growth rate of 2.7% in Average Hourly Earnings.

As the recent past has demonstrated, as long as the headline number does not deviate too far from expectations, the Average Hourly Earnings data will likely get a lot of attention. This is because inflation – and particularly wage inflation – is something the Fed has been closely monitoring.

If wage growth is strong and the headline number is within expectations, the USD could break out above the 95.00 level as we approach next week’s inflation stats, which should come in near 3.0%. This will continue to show strength in the American economy and make more rate hikes in 2019 a possibility.

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