Bullish USD Outlook Depends on Two Factors

Bullish USD Outlook Depends on Two Factors

Federal Reserve Chairman Jerome Powell stated earlier in a high-profile tone that the Fed may begin its policy on tapering by the middle of November. Due to the good performance made by listed companies, the US stocks hit record high relentlessly within the weeks after the statement above. The Fed must be relieved because its tapering plan bolsters the US stocks further instead of putting it under pressures. It is estimated that the Fed may announce the tapering policy on November 3.

It the Fed decides to implement the tapering policy, more attention should be paid to whether the policy can be finished in half a year. The accomplishing of the policy within half a year is slightly conducive to the USD outlook, mainly because the financial market has already expected that the Fed may begin to hike interest rate in next July and redo it by the end of next December. On the contrary, if the Fed spends one year implementing the tapering, it will be unfavorable for the USD as the interest rate hike is likely to be issued in late 2022 or even early 2023.

With a more deteriorating inflation in the US recently, the Fed has to step up efforts to head off it. But the Fed is not expected to mention the phrase “rate hike” during this rate-setting meeting, as it doesn‘t want to heap more pressure on the market by delivering two hawkish messages consecutively. It is estimated that the messages will be released by the Fed officials one by one after next week, indicating the possibility of a sooner-than-planned rate hike. More hopes are given to the Fed and market’s determination to crack down on inflation.

In addition, commodity traders may have scruples about whether the commodity market will be bullish, curbing the commodity prices. Whilst, the Fed knows that the releasing of rate-hike message can boost the USD, conducive to bringing down the inflation in the US. Generally speaking, because of the Feds accelerated tapering, financial market expects that the rate hike is likely to start by the middle of next year, by then, an increasing USD will be favorable for weakening the bullish commodity prices and controlling the US imported inflation.

Whether the Fed decides to take a sooner-than-planned rate hike depends on Fridays US employment data. The main international authoritative media estimate that this Friday may witness an overall good performance of the US nonfarm payrolls and unemployment rate, among which the nonfarm payrolls are expected to increase 413K, compared with the previous value 194K, and the unemployment rate to decrease to 4.7% from previous value 4.8%. If the related employment data jumps comprehensively on Friday, it is likely to consolidate the early interest rate hike in the US, bolstering the USD further.