Fed speak could keep Dollar Volatility alive this week

Fed speak could keep Dollar Volatility alive this week

An unusually large number of scheduled speeches from the FOMC members this week are likely to keep the Dollar volatility alive as the markets try to understand the FOMC’s stand on the interest rate hike. From its recently concluded FOMC meeting, the Fed removed the word patient and replaced it with being reasonably confident. The Fed ruled out a rate hike in April and said that interest rates will not be changed for at least a ‘couple of meetings.’ The Fed however noted that a June rate hike is possible but would be data dependent and that removal of the word patient did not mean that the Fed was impatient to hike rates.

Overall, the tone of the Fed was one that was mixed and the market’s reaction to the news also reflected the same view.

In this aspect, the speeches from the following Fed members, all of whom are voting members will be important for market participants as they try to scrutinize the speeches to get more clues. Acknowledging that the labor market data continues to improve, the only thorn for the Fed is the sluggish inflation data, which has refused to budge any close to the Fed’s target rate of 2%. But it seems like a closed loop scenario as a rising US Dollar, besides other things continue to keep commodity prices low, which in turn tend to put more downward pressure on inflation.

Furthermore, the recent appreciation of the US Dollar has also affected exports, and consensus is already building up towards a flat growth during the first quarter of this year.

The following shows the list of FOMC member’s speeches due this week (time in GMT)

• 23/03 15:45 Stanley Fisher (Fed Vice Chair, FOMC Voting member)
• 24/03 01:15 John Williams (FOMC Voting member)
• 25/03 10:30 Charles Evans (FOMC Voting member)
• 26/03 13:00 Dennis Lockhart (FOMC Voting member)
• 27/03 10:30 Stanley Fisher (FOMC Voting member)
• 27/03 19:45 Janet Yellen (Fed Chair and Voting member)
• An important common element to the speeches from the above members being that, all of them are considered doves when it comes to their views on interest rates.

The question on everyone’s mind is would we see the speeches from above members continue to keep downward pressure on the US Dollar?

As of Friday’s close, the US Dollar index erased most of its gains from the day after the FOMC meeting and closed the week back at 98.09, just a few points below the FOMC’s lower close at 97.77.

The intraday chart for the US Dollar Index shows a decline during the FOMC statement release, closing the day at lows of 97.77. The Greenback then recovered the next day to post a high at 99.66, but failed to break above the previous highs near 100. On Friday, 20^th March, the Greenback yet again saw a sell off to close back within the lows of the 97.77.

A break below 97.77 this week along with a potential retest of this low could possibly open the gates for the US Dollar to decline even more, making the much needed correction.

Besides the Fed member’s speeches, other important economic data from the US includes the CPI and final Q4 2014 revised GDP numbers as well.