US Dollar: Data focus and Fed expectations – Commerzbank

Commerzbank’s Michael Pfister notes that if negotiations with Iran fail to progress, markets will turn to a heavy slate of US data, including the second estimate of first-quarter GDP and key PCE inflation readings. With FOMC rhetoric turning more hawkish, he stresses that solid growth and stronger PCE are needed to sustain current US rate hike expectations and support the US Dollar.

US data and Fed rhetoric in focus

"If no significant progress is made in today's negotiations either, the market will likely focus this afternoon on the series of US data set to be released."

"Admittedly, it is 'only' the second estimate of US growth in the first quarter, and the PCE index can usually be estimated quite well from the already released inflation and producer price figures."

"However, given that statements from FOMC members have become increasingly hawkish in recent days and weeks - which is certainly one of the key reasons for the shift in market expectations towards interest rate hikes - it will be decisive whether the figures support these expectations."

"In other words, growth must be solid and the PCE index should ideally exceed expectations. If this does not happen, expectations of interest rate hikes (and thus a stronger US dollar) could collapse quite quickly."

"And the US president might also quickly abandon his newly discovered restraint regarding the Fed."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)