Investing.com – The US dollar is expected to stabilize in the coming weeks after recent economic data showed mixed signals about the strength of the US economy. After a period of volatility, analysts at ING now expect a calmer trading environment with low volatility until more substantive data is released.
Latest inflation figures showed a slight slowdown, with the core CPI rising 0.3% month-on-month, the first slowdown in six months. Conversely, retail sales in April showed no growth, raising speculation that US economic momentum may be waning. Despite these indicators, the Fed's ongoing concerns about inflation suggest that interest rates are likely to remain higher for an extended period.
Comments from Federal Open Market Committee (FOMC) members following the release of the CPI reflect a dovish stance toward monetary policy. The hawkish Federal Open Market Committee member Neel Kashkari stressed the possibility that current policy may not be tight enough, while the usually dovish Austin Goolsby acknowledged that more efforts were needed to combat inflation.
Market expectations have changed, with expectations now of two interest rate cuts during the year, a sentiment not seen in the past month. This forecast is more optimistic than some analysts who expect a more pessimistic path, with three rate cuts beginning in September 2024. However, these forecasts are contingent on upcoming economic releases, such as core personal consumption expenditures data scheduled for May 31 and employment numbers in Early June, which may support the dovish narrative if it is in line with current trends.
The yen's recent rise may be short-lived, as Japan's disappointing growth numbers have emerged, contributing to the currency's loss of momentum. In a market environment characterized by low volatility, carry trades are expected to become the preferred strategy among investors. The dollar, especially against low-yielding currencies such as the yen, is expected to find stability in the 104/105 range.
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Today's US economic calendar includes unemployment claims, April housing starts, and the Philadelphia Federal Reserve's business expectations index. These releases, along with speeches by Fed officials such as Raphael Bostic, Loretta Mester, and Thomas Barkin, can influence market sentiment. In addition, retail sales and industrial production data from China will be closely watched as it may determine the market's direction ahead of the weekend.
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